October 31, 2002

The Honorable Donald L. Evans

Secretary of Commerce

Washington, D.C. 20230

Mr. Secretary:

I am pleased to provide you with the Inspector General's Semiannual Report to Congress for the second half of fiscal year

2002. Section 5 of the Inspector General Act requires that you transmit this report, with any comments you may wish to add,

to the appropriate congressional committees within 30 days of your receiving it.

This semiannual period marks the end of a fiscal year in which America has faced some sobering, new uncertainties in

economic and foreign affairs. Many of these matters directly touch the Department of Commerce—particularly its efforts to

support economic expansion and advance U.S. national security, foreign policy, and global competitiveness. This Semiannual

Report to Congress details our reviews of a number of Commerce programs and activities that pertain to these efforts and

reveals a Department committed to its mission and to ensuring the integrity of its operations. We have noted improvement in

some areas previously found deficient, while identifying new or persistent weaknesses in other areas that must be addressed.

We are confident that with your guidance, your senior officials will continue to pursue resolution of these problems. 

One measure of the commitment to this goal is the overall success of the Department at meeting the critical management

challenges before it, as identified by my office. You will note that we have revised our list of top challenges to reflect a variety

of changing circumstances facing the Department: (1) we combined two challenges related to financial management because

Commerce’s ability to maintain a clean opinion on its consolidated financial statements depends heavily on its ability to

strengthen its financial systems and controls; (2) we changed the focus of our USPTO challenge to reflect the bureau’s

progress toward transitioning to a performance-based organization; and (3) we have added a challenge that speaks directly to

the uncertainties we have come to face in this past year—enhancing emergency preparedness, safety, and security of

Commerce facilities and personnel.

This past year—as America has strived to prosper and remain secure—Commerce's responsibility for promoting the nation's

well-being, as well as ensuring the security of its own facilities, systems, and personnel, has grown heavier. Our work during

this reporting period confirms its determination to fulfill this responsibility. My staff and I look forward to supporting your

efforts to ensure the sound management of the Department as it endeavors to meet the many critical missions with which it

has been charged. 

Sincerely,

Johnnie E. Frazier
September 2002/Semiannual Report to Congress v

TABLE OF CONTENTS

IG's Message to Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii

Major Challenges for the Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Strengthen Financial Management Controls and Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Strengthen Department-Wide Information Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Enhance Export Controls for Dual-Use Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Effectively Manage Departmental and Bureau Acquisition Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Enhance Emergency Preparedness, Safety, and Security of Commerce Facilities and Personnel . . . . . . . . . . . . . . . . . . . . . . . . .7

Successfully Operate USPTO as a Performance-Based Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Increase International Compliance with Trade Agreements and Expand Market Access for American Exporters . . . . . . . . . . . .9

Increase the Effectiveness of Marine Resource Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Continue to Improve the Department's Strategic Planning and Performance Measurement in Accordance with GPRA . . . . . . .11

Effectively Manage Major Commerce Renovation and Construction Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Department of Commerce Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Agency Overviews

Bureau of Industry and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Economic Development Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Economics and Statistics Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Minority Business Development Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

National Oceanic and Atmospheric Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

National Telecommunications and Information Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Technology Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

United States Patent and Trademark Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Department-Wide Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

OIG Highlights: Special Items of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57

Tables and Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Statistical Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Tables and Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70

Types of OIG Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Fiscal year 2002 concludes with America confronting some

especially trying times, as the nation and each of its citizens grapple with the new realities that define our security

on both foreign and domestic soil. Leaders at all levels of government have been vigilant in their efforts to restore corporate

accountability, maintain a stable economy, and ensure the protection of Americans everywhere.

The Department of Commerce plays a pivotal role in promoting

economic growth and sustainable development, sponsoring technological innovation, and administering the nation's system for

control of dual-use goods and technologies. Accordingly, the

Office of Inspector General has spent the past 6 months evaluating the Department's efforts in these and other areas that are

critical to its sound and competent functioning. We have noted in

many of its programs and activities a strong emphasis on individual and management accountability. We have found continuing

dedication to improving the security of the Department's critical

assets and some noteworthy progress as a result. 

Our emphasis on security, effective management, and accountability during this semiannual period also reflects congressional

priorities for all federal agencies. At Commerce these priorities

have prompted such work as the following: 

National/Systems Security. We conducted our annual follow-up

review of actions taken by Commerce units—principally the

Bureau of Industry and Security (BIS)—to implement recommendations we have made over the past 3 years for improving

dual-use export controls, as required by the National Defense

Authorization Act (NDAA) for Fiscal Year 2000 (see page 14).

Given the nation's heightened concern about homeland security

and the acquisition of weapons of mass destruction by rogue governments and terrorist groups, Commerce's role in setting and

implementing dual-use export control policy and regulations will

likely remain a priority area for congressional scrutiny, as it will

for our office.

Equally important to the national interest is the security of the

Department's information assets. Hence, we detail the findings of

our Commerce-wide evaluation of information security programs, mandated by the Government Information and Security

Reform Act, as well as our agency-specific reviews at the U.S.

Patent and Trademark Office (USPTO) and the National Institute

of Standards and Technology (NIST) (see pages 53, 45, and 39,

respectively). We are pleased to report that the Department and

its operating units have made strides toward improving information security, and we urge them to continue to act on

recommendations we have made that remain open. We also discuss the outcome of our evaluation of security provisions in

departmental contracts for information services and equipment

(see page 51)—a review that uncovered some serious weaknesses in contract documents, which the Department is working to

address. 

Financial/Operational Management. During this reporting period, we concluded an evaluation of the Department's effort to

complete its integrated financial management system, and noted

needed improvements in planning and management (see page

52). We reviewed bankcard programs, testified before Congress

about Commerce's oversight of purchase card use (see page 57),

and collaborated with the Department of Education OIG to produce a guide for conducting effective purchase card reviews (see

page 58). We examined operations at the Office of Administrative

Services and found that, among other things, its management of

the employee awards program was seriously deficient. As a result

cash awards sometimes greatly exceeded departmental thresholds, and payroll taxes were not routinely withheld from award

payments (see page 49). 

Other Areas of Focus. We completed reviews of a range of other

departmental activities, such as the following acquisition, financial assistance, and research efforts and, as appropriate, made

recommendations:

■ Our assessment of NOAA's high-cost acquisition program to upgrade its fleet of research vessels (page 31)

highlighted a series of weak management controls that

threaten to delay ship delivery.

■ Reviews of 19 financial assistance awards made by

EDA (page 16), MBDA (page 28), NIST (page 41), and

NOAA (page 34) resulted in our questioning $3.4 million in federal claimed costs and recommending $11.2

million in funds to be put to better use. We also identified

opportunities to improve management and administration

of individual financial assistance programs.

■ An examination of the Salmon Research Plan at the

Northwest Fisheries Science Center (page 32) revealed

vii September 2002/Semiannual Report to Congress

IG'S MESSAGE TO CONGRESS
that this planning document has many strengths. Whether

its implementation will actually improve the quality of

the center's salmon-related work, however, has not been

rigorously evaluated by a documented peer-review

process; such a process could better ensure that the plan

addresses program concerns in order of importance. In

addition to implementing an effective plan, the center

needs to establish better processes for managing

research projects and priorities. 

You will note that with this Semiannual Report to Congress we

have revised our list of Top 10 Management Challenges facing

the Department to reflect either significant progress, a shifting

emphasis, or a new area of concern. Much of the work we

describe here corresponds to these challenges and thereby provides a look at Commerce's progress toward resolving them.

Accordingly, as implementation of the Commerce Administrative

Management System (CAMS) nears completion, we turn to monitoring the Department's continuing efforts to strengthen financial

management systems and controls. With acquisition reform well

under way, we will now watch how well Commerce manages its

procurement processes. And with the U.S. Patent and Trademark

Office making steady progress toward incorporating performance-based processes, we will evaluate selected aspects of its

operations. Completely new is the challenge to improve and

develop the procedures and policies necessary to ensure the safety and security of Commerce facilities and personnel, which will

allow the Department to assure the American public that in crisis

situations, Commerce functions and responsibilities can and will

be carried out. 

For all of the work contained in this semiannual report, we have

routinely delivered our findings and recommendations to the

Department, and it has been generally open and responsive to

addressing them. We look forward to detailing its progress at

resolving these and other issues in semiannual reports to come.

viii

IG’s Message to Congress

U.S. Department of Commerce/Office of Inspector General
September 2002/Semiannual Report to Congress

This section highlights OIG’s Top 10 Management

Challenges that faced the Department at the close of this

semiannual period. We view these issues as Commerce’s

top challenges because they meet one or more of the following

criteria: they are important to the Department’s mission or the

nation’s well-being; they are complex; they involve sizable

expenditures; or they require significant management improvements. Given the diverse nature of Commerce activities, many of

these issues cut across bureau and program lines. We believe that

by addressing these challenges the Department can enhance program efficiency and effectiveness; eliminate serious operational

problems; decrease fraud, waste, and abuse; and achieve substantial savings.

CHALLENGE 1: STRENGTHEN

FINANCIAL MANAGEMENT

CONTROLS AND SYSTEMS

The Chief Financial Officers Act of 1990, the Government

Performance and Results Act of 1993, the Government

Management Reform Act of 1994, and the Federal Financial

Management Improvement Act of 1996 were designed to

improve financial management and accountability in the federal

government. These statutes require the preparation of information needed by Congress, agency executives, and the public to

assess management’s performance and stewardship. Information

required includes audit reports of agency financial statements

that present an entity’s financial position and results of operations. These reports must state whether an agency’s financial

management systems comply with federal requirements.

The Department received an unqualified (clean) opinion on its

FY 2001 consolidated financial statements—the third consecutive year for this accomplishment despite continuing obstacles,

including the absence of a single, integrated financial management system. (See March 2002 issue, page 83). The audits of the

Department’s FY 2001 statements identified two reportable conditions (one of which is considered a material weakness1

) and

several instances of noncompliance with laws and regulations,

none of which was a new matter. This number of deficiencies is

lower than in previous years as a result of the Department’s significant progress in recognizing and recording appropriations,

along with improvement in its account balance reconciliations. 

Notwithstanding substantial improvements in financial management, maintaining a clean audit opinion remains a major

challenge, especially under the accelerated financial reporting

dates mandated by the Office of Management and Budget (OMB)

for FY 2002 and beyond. Further improvements in financial

management systems and operations are essential to enable the

Department and its entities to correct the material weaknesses

and other deficiencies identified in the audits of FY 2001 statements and produce timely, useful financial information. We

1

MAJOR CHALLENGES

FOR THE DEPARTMENT

TOP 10 MANAGEMENT

CHALLENGES

1. Strengthen financial management controls and systems.

2. Strengthen Department-wide information security.

3. Enhance export controls for dual-use commodities.

4. Effectively manage departmental and bureau 

acquisition processes. 

5. Enhance emergency preparedness, safety, and security 

of Commerce facilities and personnel.

6. Successfully operate the U.S. Patent and Trademark 

Office as a performance-based organization.

7. Increase international compliance with trade agreements and expand market access for American 

exporters.

8. Increase the effectiveness of marine resource 

management.

9. Continue to improve the Department's strategic planning and performance measurement in accordance 

with the Government Performance and Results Act.

10. Effectively manage major Commerce renovation and

construction projects. 1 Material weaknesses are serious flaws in the design or operation of an internal

control component that increase the risk that errors, fraud, or noncompliance in

material amounts may occur and not be readily detected.
retained an independent certified public accounting firm to audit

the Department’s consolidated financial statements for FY 2002

and will present the findings of this audit in our March 2003

Semiannual Report to Congress.

The Department recognizes the need for ongoing efforts to create

a financial management environment that provides reliable financial and performance information and complies with federal laws

and regulations. Such information is vital to sound decision making. Therefore Commerce continues to focus on strengthening

financial management systems by implementing the Departmentwide Commerce Administrative Management System to comply

with federal laws and regulations and provide Commerce with

accurate, timely, and reliable financial management and performance information.

The Department expects that by October 2003, Commerce’s outdated and fragmented financial systems will have been replaced

by CAMS. While most operating units will use CAMS, three

units—International Trade Administration (ITA), U.S. Patent and

Trademark Office, and National Technical Information Service—

will not, but will submit data along with all other units into a

Commerce-wide financial database, which will serve as the

source for the Department’s consolidated financial reports. The

Department expects that CAMS, in conjunction with the database, will bring Commerce into compliance with federal financial

systems requirements, including that for a single, integrated

financial management system.

Since 1995 the Office of Inspector General has conducted reviews

of the CAMS program, assessed the operational system in its annual financial statements audits, and monitored program or system

progress. In recent semiannual reports we expressed concern about

the management of CAMS development and maintenance, as well

as the efficiency and economy of CAMS’s implementation. In the

last semiannual we noted that, as a result of our reviews of CAMS

over the past several years, the Department has taken steps to

address many of our recommendations. During this reporting period, we completed our review of program management controls at

the CAMS Support Center (CSC) (see page 52). We identified a

need for the Department and the center to (1) improve plans for

major systems activities to support CSC’s budget submission and

capital asset planning, (2) track the actual cost of major system

activities, (3) improve the CAMS Capital Asset Plan and CAMS

Quarterly Reports, and (4) use an automated management system

to monitor cost, schedule, and technical performance. 

The Department’s response indicates it is taking actions consistent with our recommendations: it is working to improve the

CAMS budgeting process as the project moves into the operations and maintenance phase, has begun tracking actual costs as

of this fiscal year, intends to improve the quarterly reports, and is

working toward a performance-based management system. We

will continue to monitor development and implementation of the

Department’s financial systems, and will keep Congress and

other stakeholders informed of our findings.

CHALLENGE 2: STRENGTHEN

DEPARTMENT-WIDE

INFORMATION SECURITY

Commerce’s information technology systems and the data they

process and store are among the most critical assets of virtually all

the Department’s line offices and operating units. For example,

NOAA’s satellite, radar, and other weather forecasting data and

systems protect lives and property; BIS’s export license data helps

control the release of dual-use commodities to foreign lands;

ESA’s economic indicators have policy-making and commercial

value and can affect the movement of commodity and financial

markets; USPTO’s patent and trademark information is essential

to administering patent and trademark law, promoting industrial

and technical progress, and strengthening the national economy.

Keeping IT systems and data secure is of overriding importance

to the Department and the entire nation: loss of or serious damage to any one of Commerce’s critical systems could have

devastating impacts. However, weaknesses in information security continue to exist throughout Commerce. Thus, identifying

those weaknesses and recommending solutions remain a top priority for the Office of Inspector General. 

During this semiannual period, OIG completed its second year of

information security evaluations under the Government

Information Security Reform Act (GISRA), which requires each

federal agency to review its information security program annually and each OIG to perform an annual independent evaluation

of that program. Agency heads must provide both of these assessments to OMB. 

Our evaluation this year found that Department-level executive

support for information security continues and has prompted senior management officials in the operating units to increase their

attention to this area. As a result the Department has made significant progress over the past year in establishing the foundation

for an effective information security program, but much remains

to be done, given the severity of Commerce’s information security weaknesses and the magnitude and complexity of the effort

needed to address them. 

For example, we found numerous systems operating without

required risk assessments or approved security plans. Some that

had approved security plans provided no evidence that risk

analysis—a prerequisite for the security plan—had been conducted. Most operational systems have not been accredited (that

is, they have not received management’s formal authorization to

2

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General
operate, including its explicit acceptance of risk). Those that are

accredited frequently lack evidence of the requisite security testing and evaluation, thus diminishing the assurance that

accreditation is intended to impart. We believe that in the coming

year, the Department should focus on implementing approved

security plans of adequate content and quality for all operational

systems and putting those systems through rigorous certification

and accreditation processes. The Department reported information security as a material weakness in its FY 2001

Accountability Report; we believe it should continue to be reported as such until Commerce systems that are part of the nation’s

critical infrastructure, as well as those that are mission critical,

have been accredited (see page 53).

NIST Evaluation

As part of our Department-wide GISRA review, OIG assessed the

information security program at NIST and found that the bureau

is taking steps to improve its program but has yet to meet many

important security requirements. At the time of our evaluation,

NIST lacked a comprehensive information security program policy, did not have a documented risk assessment or approved

security plan for any of its operational systems, and had accreditations for only two systems. Since the completion of our

fieldwork, the director of NIST has taken important steps toward

improving information security, including issuing several memorandums acknowledging responsibility for the security of NIST’s

data and IT systems and directing all members of senior management to give information security high priority. NIST agreed with

the findings in our report and has begun to implement our recommendations (see page 39).

Separate GISRA Review for USPTO

In its efforts to position itself as a performance-based organization—given the greater independence and flexibility provided by

the American Inventors Protection Act of 1999 (P.L. 106-113)—

the United States Patent and Trademark Office conducts its own

information security review and submits its GISRA report separately from the Department. OIG must therefore conduct a

separate GISRA assessment of USPTO. 

Our independent evaluation found that the Under Secretary of

Commerce for Intellectual Property and Director of USPTO has

made a commitment to protecting the bureau’s information assets

and is devoting additional attention and resources to their security. But because of inadequate attention to these matters in the

past, significant weaknesses exist in USPTO’s planning and

budgeting for information security and implementation, review,

and oversight of security measures. At the time of our evaluation,

more than 80 percent of the bureau’s operational systems lacked

risk assessments, about one-third had outdated security plans,

and none were accredited. As with Commerce as a whole, we

believe that information security at USPTO is a material weakness and should be reported as such until all the bureau’s

mission-critical systems are accredited (see page 45). 

As part of our GISRA review, we assessed USPTO’s implementation of system-specific security controls, particularly focusing on

the Patent Application Capture and Review System (PACR). The

bureau relies on PACR to capture, store, maintain, retrieve, and

print digital images of U.S. patent applications and has identified

it as a highly sensitive system. We concluded that physical security measures in place during our assessment generally provide

appropriate protection for PACR equipment. However, we determined that a risk assessment has not been conducted, the security

plan is not approved, security controls have not been tested and

reviewed, and contingency planning and specialized security

training is needed. USPTO agreed with our recommendations and

reported on corrective actions under way or planned (see page 46).

Contract Security Weaknesses

During this semiannual period we also concluded a review of the

Department’s IT service contracts, finding that security provisions to safeguard sensitive but unclassified systems and

information were either insufficient or nonexistent. We recommended that the Department (including USPTO) establish

standard contract provisions for safeguarding the security of

unclassified systems and disseminate a clear, detailed policy for

acquiring these systems and services. We further recommended

that the Department determine whether current contracts need to

be modified to include information security provisions, recognizing that in some cases contract costs could increase as a result of

such changes. The Department agreed with our recommendations

and is taking steps to correct the deficiencies (see page 51). We

will monitor and report on its progress. 

CHALLENGE 3: ENHANCE

EXPORT CONTROLS FOR

DUAL-USE COMMODITIES

The adequacy of export controls is a continuing concern.

Opinions vary on how well the government’s export control policies and practices balance the need to protect U.S. national

security and foreign policy interests with the desire to promote

U.S. trade opportunities and competitiveness. Striking this balance is a significant challenge for the parties involved,

particularly for Commerce’s Bureau of Industry and Security

(BIS), which oversees the federal government’s export licensing

and enforcement system for dual-use commodities (goods and

technologies that have both civilian and military uses).

September 2002/Semiannual Report to Congress 3

Major Challenges for the Department
Strengthening dual-use export licensing and enforcement requires

new, comprehensive legislative authority to replace the expired

Export Administration Act of 1979 and appropriately address current export control needs and realities. Passed during the Cold

War, the act sought to prevent the export of critical goods and

technologies to Communist bloc countries. In today’s political climate, rogue countries and terrorist groups seeking weapons of

mass destruction and the systems to deliver them pose new threats

to U.S. national security and foreign policy goals. Legislation is

needed to address these threats, as well as to bolster BIS’s regulatory authority, stiffen penalties for violations, and demonstrate

America’s commitment to maintaining strong export controls

while encouraging other countries to do the same. 

Given the importance of export controls to national security, we

have devoted considerable attention to the challenges facing BIS.

Specifically, we responded to a request from the Senate

Governmental Affairs Committee to follow up on a 1993 interagency OIG review of the export licensing process. At the

conclusion of that follow-up work, we, along with OIGs from the

Central Intelligence Agency and the Departments of Defense,

Energy, State, and the Treasury, issued a special interagency

report in June 1999 on the export licensing processes for dual-use

commodities and munitions. 

Subsequently, the National Defense Authorization Act for Fiscal

Year 2000, as amended, directed the inspectors general of the

Departments of Commerce, Defense, Energy, State, and the

Treasury, in consultation with the directors of the CIA and FBI,

to report to Congress by March 31, 2000, and annually until the

year 2007, on the adequacy of export controls and counterintelligence measures to prevent the acquisition of sensitive U.S.

technology and technical information by countries and entities of

concern. In addition, the NDAA for FY 2001 requires the OIGs

to discuss in their annual interagency report the status or disposition of recommendations made in earlier reports submitted in

accordance with the act. To date, we have completed three additional reviews of export controls in compliance with the act, as

well as three separate follow-up reports.

Although our assessments have identified significant improvements in export controls since 1993, the 1999 report detailed

some weaknesses in the licensing process. First, the processes for

commodity classification and commodity jurisdiction were not

timely and did not clearly specify the role of each agency.

Second, the intelligence community did not review all dual-use

export license applications or consistently conduct a comprehensive analysis of applications it did review, and license

applications were not screened against a key database maintained

4

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

The CIA and the Department

of the Treasury (U.S. Customs

Service) provide relevant

information to assist Commerce

with license review.

U.S. Department of Commerce, Bureau of

Industry and Security (BIS), is the primary agency

responsible for managing and enforcing the licensing process for dual-use exports. Dual-use items

are commercial products that could have both

civilian and military applications.

U.S. Department of State

manages and enforces the

munitions licensing process and

advises Commerce regarding

dual-use commodity licensing.

U.S. Department of Energy, 

Office of Arms Controls and

Nonproliferation, Export Control

Division, licenses nuclear technology and technical data for nuclear

power and special nuclear materials.

U.S. Department of Defense, Defense Threat

Reduction Agency—Technology Security, is responsible for the development and implementation of

policies on international transfers of defense-related

technology, and reviews certain dual-use export

license applications referred by Commerce.

Federal Agencies Participating in the Dual-Use Licensing Program
by the U.S. Customs Service. Third, there were some recurring

problems with BIS’s monitoring of licenses that had reporting

requirements. 

Subsequent OIG reviews have added items to the list of areas

that require BIS’s attention: the bureau needs to clarify the

licensing policy and regulations regarding the release of controlled technology—commonly referred to as “deemed

exports”—to foreign nationals. It also needs to conduct more

outreach to federal and private research facilities to ensure that

they are aware of deemed export regulations and apply for

required licenses when appropriate.

The bureau also needs to improve its management of the list of

controlled dual-use commodities and technologies, known as the

Commerce Control List. We have recommended that BIS make

the list more user-friendly, improve the timeliness with which it

implements agreed-upon multilateral changes to the list, and

address the inappropriate use of national security controls on

some items. 

Furthermore, we have several concerns about the overall effectiveness of the Committee on Foreign Investment in the United

States (CFIUS), specifically CFIUS’s lack of mandatory foreign

investment reporting, the low number of investigations conducted on company filings, the role of the Treasury in overseeing

CFIUS activities, and—within Commerce—the division of

responsibilities between BIS and ITA for the CFIUS program. 

The interagency OIG review team has agreed to conduct an indepth examination of the Committee’s effectiveness as part of its

future work under the National Defense Authorization Act. 

Upgrades to Automated Systems 

During the last reporting period, we completed a review of

BIS’s efforts to modernize its automated licensing and enforcement systems. These enhancements are important for the

Department because BIS needs a more efficient system for processing export license applications and monitoring/enforcing

compliance. Our review found that BIS has made some

progress on its systems redesign effort. For example, two components of the system are expected to be implemented in fiscal

year 2003. However, our review also determined that BIS needed to (1) better plan to ensure the long-term success of the

project and (2) implement established best practices for information technology management. 

In addition to our assessment of Commerce’s system, the interagency OIG review team looked at the various automated dual-use

and munitions export licensing systems—maintained by

Commerce, Defense, Energy, and State—to determine whether

the systems could better interact and whether system modernization initiatives were in accordance with federal policies and regulations. The OIGs found limited effort to coordinate either

systems interaction or systems modernization. 

In the months since we issued our report on BIS, the bureau has

taken action to correct some of the weaknesses we identified.

However, OIG recommendations made to the relevant agency

heads to help ensure better integration of the licensing systems

and avoid duplication may require action by Congress or OMB.

Focused Priorities

The challenges for BIS, as well as for the administration and

Congress, remain (1) passing a new Export Administration Act,

(2) targeting federal licensing and enforcement efforts on those

exports that present the greatest proliferation and national security risks, and (3) streamlining or eliminating controls that

unnecessarily hamper trade. We will continue to monitor BIS

efforts to improve dual-use export controls through the annual

reviews required by the National Defense Authorization Act.

CHALLENGE 4: EFFECTIVELY

MANAGE DEPARTMENTAL

AND BUREAU ACQUISITION

PROCESSES

Federal acquisition legislation in the 1990s mandated sweeping

changes to the way federal agencies buy goods and services.

Today acquisition reform initiatives are well under way, and the

task before Commerce has shifted from successfully implementing reform initiatives to effectively managing the processes those

initiatives have fostered. Accordingly, we have revised this top

10 challenge to reflect this new focus. 

Effective acquisition processes are critical to the Department:

Commerce annually spends more than $1 billion through contracts and other procurement vehicles. The Department must

balance the desire to streamline the acquisition process with the

need to ensure that taxpayer dollars are wisely spent and laws and

regulations followed. 

Acquisition reform was intended to reduce the time and money

spent purchasing needed goods and services and improve the efficiency of the process. To accomplish these goals, reform

initiatives encouraged contracting officers to (1) rely on performance-based service contracting and use performance-based

measurement tools such as earned value and risk management,

(2) consider past performance as a criterion for selecting contractors, and (3) make increased use of commercially available

products. The initiatives emphasized results-based acquisition

September 2002/Semiannual Report to Congress 5

Major Challenges for the Department
and promoted life-cycle management of information technology

as a capital investment. For high-volume, low-dollar purchases,

they called for using the government purchase card whenever

possible to eliminate lengthy procurement lead times.

The resulting streamlined processes, however, must not neglect

basic acquisition principles: careful acquisition planning, prudent

review of competitive bids, adept contract negotiations, wellstructured contracts, and effective contract management. These

are the principles we focus on in evaluating the Department’s

performance in meeting this top 10 challenge. 

Government-wide, the new acquisition methods have brought

new concerns. Oversight organizations such as the General

Accounting Office (GAO) and OMB’s Office of Federal

Procurement Policy (OFPP), along with the IG community,

report a variety of problems with agencies’ implementation of

some procurement practices.

■ GAO and OIGs have identified problems with some agencies’ use of purchase cards, primarily due to weak internal

and administrative controls, improper purchases, lack of

proper accountability, and inadequate training for

cardholders. 

■ GAO and OFPP have found deficiencies—such as failure

to obtain competitive quotes—in the use of governmentwide agency contracts (GWACs) and other multiple

award instruments. 

■ With the government’s increased emphasis on competitive

sourcing, GAO and OFPP remain concerned about the

procurement practices of many agencies, criticizing in particular their lack of focus on results. 

We also have concerns about service contracting within the

Department. In past reports we have identified problems with the

use of performance-based service contracting: specifically, failure to use performance-based task orders where they would be

beneficial; insufficient planning for contract administration and

monitoring; and the need for increased training of contracting

officer’s technical representatives (COTRs). In this semiannual

period, we completed a review of IT service contracts throughout

the Department to determine whether they contain information

security provisions that adequately safeguard sensitive but

unclassified systems and information. (See page 51.) We found

that such provisions were either missing or inadequate and recommended that the Department develop policy, incorporate

appropriate contract provisions, and require training to help

ensure that contracts provide for adequate information security

and that acquisition, program, and technical personnel know how

to plan, implement, and manage such contracts. The Department

concurred with our recommendations and is taking actions to

address them. 

The complex nature of certain acquisitions, such as those for performance-based IT services, increases the importance of including

the whole acquisition team in the entire contracting cycle—from

planning to closeout. Teams should include not only experienced

contracting and procurement staff, but also program, technical,

security, budget, financial, logistics, and legal personnel. We

believe that the inadequacy of security provisions in IT service

contracts is attributable, in part, to the lack of sufficient involvement of program managers and IT personnel during acquisition

planning, requirements definition, and contract award.

Commerce has continued to implement various reform initiatives

and has taken steps to improve acquisition management.

Automation of the procurement process has been a primary

focus, as has been the qualifications and training of the acquisition workforce. The Department’s Office of Acquisition

Management (OAM) has focused its attention on strengthening

overall management of the procurement function within the

Department and the need for additional tools and training for procurement staff. According to the Department, efforts OAM is

making to improvement management include evaluating

Commerce’s delegation and warrant program with the goal of

realigning contracting authorities to increase overall effectiveness and accountability throughout the Department’s

procurement community. OAM has reportedly also launched an

initiative to restructure the Department-wide certification program for COTRs. This initiative includes a new training plan to

enhance COTR performance and the addition of a performance

plan element to improve their accountability.

OAM has taken steps to provide oversight and performance

measurement of acquisition activities, using a risk management

program to monitor the effectiveness of reform initiatives

Department-wide. Furthermore OAM completed a review of procedures used by operating units to issue task and delivery orders

under General Services Administration (GSA) Federal Supply

Schedules and other multiple award contracts and is working on

reviews of interagency agreements, memorandums of understanding, and purchase card policy. Finally, OAM is

collaborating with the Office of the Chief Information Officer

and the Commerce budget office to integrate budget and planning

for IT acquisitions. We are currently reviewing purchase card

activities. We will discuss our results in the next semiannual

report. We will also continue to assess the status of the

Department’s other acquisition efforts to ensure they meet the

goals of acquisition reform. Where necessary we will make recommendations for improvement.

6

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General
Major Challenges for the Department

September 2002/Semiannual Report to Congress

CHALLENGE 5: ENHANCE

EMERGENCY PREPAREDNESS, SAFETY, AND

SECURITY OF COMMERCE

FACILITIES AND PERSONNEL

As the threat of terrorism against U.S. interests has escalated at

home and abroad, the need to strengthen security and emergency

preparedness in both the public and private sectors has taken on

new urgency. Federal agencies have rededicated themselves to

ensuring the integrity of their operations, the protection of their

people, their ability to continue essential services and operations during a crisis, and the suitability of risk and sensitivity

designations2 for personnel in positions of public trust. As part

of this national effort, the Department has identified and

addressed many of the vulnerabilities in its emergency preparedness plans and procedures and in the physical security of

its facilities. It is also working to address identified vulnerabilities in its procedures for designating positions according to risk

and sensitivity and for conducting appropriate background

investigations of the people hired to fill sensitive and security

positions. Strengthening policies and procedures to ensure the

thoroughness of personnel background checks is an important

step that must be taken as departmental managers strive to

improve their response capabilities in emergencies and during

security threats. 

Homeland Security Presidential Directive-3 (HSPD-3), dated

March 12, 2002, established a Homeland Security Advisory

System for the nation and requires executive branch agencies to

implement protective physical security measures to reduce vulnerability or increase response capability during periods of

heightened alert. Subsequently the Department issued a memorandum to all Commerce operating units directing senior

officials to survey their current safety status and implement any

measures required by the directive that are not already in place,

along with supplementary measures that local conditions may

require. 

In addition, Presidential Decision Directive 67, dated October

1998, directs federal agencies to develop continuity of operations

plans (COOPs) to ensure the performance of essential functions

during any situation that may disrupt normal operations. The

chaos of September 11 highlighted the need for each federal

agency to have a COOP in place that details the orderly transition

to emergency operations and ensures that essential services and

functions continue during a crisis, be it generated by terroristrelated incidents, natural disasters, or other events. 

Complying with these directives, and related ones, is a complex,

resource-intensive undertaking for Commerce, given the size of

its workforce, its diverse and important missions, and the geographical spread of its approximately 500 facilities across the 50

states and 160 offices overseas. Heightened security requires a

variety of measures: infrastructure risk assessments, emergency

backup sites, upgraded physical security, and employee awareness and training, to name a few. The Department’s personnel are 

being asked to safeguard life and property under emergency circumstances and to ensure that essential functions continue during

any of a broad spectrum of emergencies. We believe that

Commerce is making progress on many of these fronts, but the

challenge is massive. 

In our March 2002 report on the status of emergency preparedness and security programs at a cross-section of Commerce

facilities in the Washington, D.C., area and across the nation, we

concluded that significant improvements had been made since

September 11 in the Department’s readiness to deal with future

emergencies. However, we noted that significant vulnerabilities

still existed. We also identified some significant safety issues at

the Commerce headquarters building in Washington, D.C., and in

certain NOAA facilities in Seattle, Washington. (See March 2002

Semiannual Report to Congress, pages 77-82.)

Commerce’s challenge to strengthen emergency preparedness,

security, and safety extends to its overseas operations, especially

those not collocated with U.S. embassies and consulates. In these

latter situations the Department has primary responsibility for the

safety and security of its people and facilities. In recent inspections of overseas posts operated by the U.S. and Foreign

Commercial Service (US&FCS), we identified the need for more

timely security upgrades, better management of resources, and

improved oversight of security operations. (See March 2002

issue, page 40, and September 2000 issue, page 47.)

Given the heightened awareness of our vulnerability to acts of

terrorism, the Department will have to regularly revisit its procedures for ensuring the safety and security of its employees and

operations, and modify them as needed. We will continue to monitor its efforts in this regard and report our findings accordingly.

CHALLENGE 6:

SUCCESSFULLY OPERATE U.S.

PATENT AND TRADEMARK

OFFICE AS A PERFORMANCEBASED ORGANIZATION

The American Inventors Protection Act of 1999 established the

U.S. Patent and Trademark Office as a performance-based organ7

2 Risk designations reflect the potential damage an individual in a position of

public trust could cause to the efficiency and integrity of government programs

and operations. Sensitivity designations reflect the potential adverse impact on

national security associated with a position.
ization, giving it greater flexibility and independence to operate

more like a business. As such, USPTO has not only broader

responsibility for managing its operations but also expanded control over its budget allocations and expenditures, personnel

decisions and processes, and procurement operations. 

Despite the act’s potential benefits, USPTO’s continuing transformation remains a formidable challenge as the agency strives to

keep pace with increasingly complex technology and customer

demands for higher quality products and services. In June 2002

the bureau responded to the concerns of its many stakeholders by

issuing the 21st Century Strategic Plan, which it believes will

help guide the way to meeting the many challenges that have

accompanied its transition to performance-based operations. The

bureau must continue to develop the necessary personnel,

procurement, and administrative policies, as well as performance-oriented processes and standards for evaluating

cost-effectiveness, while meeting its performance goals under the

Government Performance and Results Act (GPRA) and the timeliness standards of the American Inventors Protection Act. 

The 5-year strategic plan, according to USPTO, is aggressive and

far-reaching, and provides a road map for major changes in

patent and trademark processes. It is intended to (1) reduce patent

pendency from the current 25 months to 18 months by 2008, (2)

move to a paperless environment and promote e-government, (3)

enhance employee development, (4) explore competitive sourcing, and (5) improve and maintain quality control. USPTO’s

strategic plan also calls for the agency to work with worldwide

intellectual property offices to create a global framework for

enforcing intellectual property rights. 

Agency management believes that failure to implement the new

plan will delay USPTO’s full implementation of e-government

initiatives and increase pendency rates. It should be noted, however, that several of the initiatives envisioned in the

plan-outsourcing preexamination reviews and changing fee structures, for example-require congressional approval.

During the next 2 years, we will review some of the operational

changes the plan proposes. We view completion of this transition

as critical to USPTO’s operating success and its ability to

address other challenges we identified in recent years, as

described below. 

Staffing to Handle Changes in Patent and Trademark

Application Activity

The number of patent application filings skyrocketed in recent

years. In FY 2001 USPTO received more than 326,081 applications for patents—an 8.9 percent increase over the number

received in FY 2000. To address the expanding workload, USPTO

hired 789 patent examiners, but lost 700 through attrition during

fiscal years 2000 and 2001, virtually negating its efforts to

increase staffing. Trademark filings, on the other hand, peaked in

2000 at 375,000 applications, but declined by 21 percent (to

296,000) in FY 2001. Because this downward trend is expected to

continue, the bureau has started to downsize its trademark staff. 

Our prior audits of USPTO reported on some of the challenges

facing the bureau in recruiting and training examiners and in hiring additional administrative judges to hear appeals. As a

performance-based organization, USPTO has greater flexibility

to design incentives to attract and retain these highly skilled

employees. During the last semiannual period we completed a

review of attrition problems in two patent examiner work groups

(see March 2002 issue, page 71). We made a number of recommendations for improving the screening and hiring process and

thereby ultimately improving retention. 

Construction of New Facility

USPTO and GSA are currently undertaking one of the federal government’s largest real estate ventures—construction of USPTO’s

2.4 million-square-foot office complex in Alexandria, Virginia.

When completed in 2005, the 5-building complex will provide

space for USPTO employees and operations currently scattered

among 18 buildings in nearby Crystal City, Virginia. Now that construction has begun, USPTO must aggressively hold the line on

project costs, monitor construction progress, and help ensure the

project stays on schedule and within the legislatively mandated cap

on the cost of completing the build-out of the facility’s shell. We

will be monitoring this major challenge and will follow up on

issues we identified during the project’s planning and design, such

as space planning and allocation, relocation strategies, and actual

versus target costs and completion schedules. 

8

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

During construction its working title is "Building E," but USPTO will

officially name this structure the Remsen Building. It is scheduled to be

completed by the end of 2003.
IT Capabilities

USPTO continues to face significant challenges in delivering

essential information technology capabilities. The American

Inventors Protection Act of 1999 requires greater operational efficiency from the bureau, further intensifying the demands placed on

IT solutions and USPTO’s ability to develop new and upgrade

existing systems. Our March 2002 evaluation of USPTO’s information security program found that in general, the bureau’s

documented policies and procedures are consistent with accepted

security practices, but many important security requirements are

not implemented, and fundamental responsibilities are frequently

not carried out (see March 2002 issue, page 74). USPTO concurred

with our findings and has begun implementing our recommendations. While the results of our evaluation suggest that information

security has yet to become an integral part of USPTO’s business

operations, the bureau’s response to our recommendations indicates genuine concern about the security of its IT systems and a

commitment to a stronger security program (see page 45).

CHALLENGE 7: INCREASE

INTERNATIONAL

COMPLIANCE WITH TRADE

AGREEMENTS AND EXPAND

MARKET ACCESS FOR

AMERICAN EXPORTERS

To compete effectively in today’s global marketplace, U.S. companies need help addressing unfair trade practices, violations of

trade agreements, inadequate intellectual property protection, and

other impediments to the import and export of goods and services as well as addressing confrontational situations with foreign

firms operating in U.S. markets. Commerce must ensure that its

trade compliance and market access efforts adequately serve U.S.

companies by helping expand trade, open world markets, and

eliminate unfair competition from imports priced at less than fair

market value or subsidized by foreign governments. 

Commerce, through various offices within the International

Trade Administration, works with the Office of the U.S. Trade

Representative, the Departments of State and Agriculture, and

numerous other federal agencies to monitor and enforce trade

agreements. The number and complexity of agreements have

increased substantially in recent years. 

To help in its compliance efforts, ITA created the Trade

Compliance Center in 1996. The center monitors U.S. trade

agreements and reviews complaints from a variety of sources.

When warranted, it forms a compliance team to bring a case to

satisfactory conclusion. Team members are drawn from center

staff and other ITA operating units including Market Access and

Compliance, Trade Development, the U.S. and Foreign

Commercial Service, and other Commerce agencies, as appropriate. In addition to the activities coordinated by the center, ITA’s

other operating units perform a substantial amount of market

access and trade compliance work. Overall, ITA’s approach to

trade compliance and market access is to try to solve problems at

the lowest level possible—avoiding formal dispute settlement

structures such as the World Trade Organization, which can take

years to resolve trade disagreements.

On the import side, unfair foreign pricing and government subsidies can disrupt the free flow of goods and adversely affect U.S.

companies’ global competitiveness. ITA’s Import Administration

(IA) works with the International Trade Commission to enforce

the nation’s antidumping and countervailing duty laws. IA investigates complaints from U.S. industries against foreign producers

and governments to determine whether dumping or subsidization

has occurred and, if so, to what extent. The commission determines whether U.S. industry has suffered material injury as a

result of the dumped or subsidized products. If both agencies

determine that injury has occurred, IA instructs the U.S. Customs

Service to assess duties against imports of those products. 

In 2001 GAO identified monitoring and enforcement of trade

agreements as a major management issue for Commerce, citing

two main reasons for this problem—first, the Department’s

shortage of staff with the expertise to monitor compliance with

trade agreements, and second, its difficulty obtaining balanced,

comprehensive input from the private sector. 

The Secretary of Commerce has taken steps to address the concerns of both Congress and GAO by making monitoring and

enforcing trade agreements a top priority for ITA and for the

Department as a whole. Commerce received additional funding

for trade compliance activities in FY 2001. 

To effectively monitor and enforce trade agreements, ITA must

maintain sufficient staff. Currently, we are reviewing ITA’s ability to recruit, hire, and retain personnel for selected positions on

the Market Access and Compliance staff. 

To improve compliance with trade agreements, ITA also needs to

promote a more coordinated federal effort. We noted that the

bureau’s trade agreement compliance process, as managed by the

Trade Compliance Center, needs to better coordinate and track

trade compliance and market access activities within ITA. The

results of this review are described on page 50 of our March 2002

Semiannual Report to Congress.

In the future, we intend to review other aspects of ITA’s approach

to market access and trade compliance, as well as its administraSeptember 2002/Semiannual Report to Congress 9

Major Challenges for the Department
tion of the antidumping and countervailing duty regulations. In

the meantime, ITA must work closely with U.S. companies, other

federal agencies, and foreign governments to identify trade compliance problems, develop workable solutions for them, and thus

enhance American firms’ access to foreign markets. 

CHALLENGE 8: INCREASE THE 

EFFECTIVENESS OF MARINE 

RESOURCE MANAGEMENT

For nearly 30 years the National Marine Fisheries Service

(NMFS) has had to balance two competing interests: promoting

commercial and recreational fishing as vital elements of our

national economy and preserving populations of fish and other

marine life. The Marine Mammal Protection Act of 1972 and the

Endangered Species Act of 1973 gave NMFS responsibility for

preventing the extinction of marine fish, mammals, and turtles, as

well as anadromous fish, such as Pacific salmon, which migrate

between the ocean and inland waterways. The MagnusonStevens Act of 1976 made NMFS the primary federal agency for

managing marine fisheries and established a regional fishery

management system to help the agency carry out its mission. A

1996 amendment to the act strengthened NMFS’s role in protecting and sustaining fisheries. 

The Department has reported that overfishing and overcapitalization in commercial and recreational fisheries have resulted in

estimated losses of billions of dollars in economic growth, thousands of jobs, and countless fishing opportunities. While certain

fisheries appear to be well managed and produce positive benefits, others are severely depleted and must be restored and

properly managed to realize their long-term potential. At the

same time, threatened or endangered fish species need to be

replenished. Among 52 distinct groups of Pacific salmon, for

example, 26 are threatened or endangered. 

NMFS has recently taken steps to restore Pacific salmon runs. In

accordance with the Endangered Species Act, the agency’s specific responsibility is to manage protected species through

conservation programs and recovery plans. Its Federal Columbia

River Power System 2000 Biological Opinion and the broader

Federal Caucus Basin-wide Salmon Recovery Strategy established performance standards to guide recovery of Pacific salmon

10

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

The Magnuson-Stevens Act of 1976 established a U.S. exclusive economic zone (EEZ), which ranges between 3 and 200

miles offshore and consists of areas adjoining the territorial sea of the United States, the Commonwealth of Puerto

Rico, the Commonwealth of the Northern Mariana Islands, and U.S. overseas territories and possessions. NMFS is

responsible for conserving and managing the fish, sea turtles, whales, seals, dolphins, and other marine mammals and

their habitats within the EEZ.
Major Challenges for the Department

September 2002/Semiannual Report to Congress

in the Columbia River Basin. NMFS has also put together teams

to develop recovery plans for threatened and endangered Pacific

salmon species. 

OIG recently evaluated the role of NMFS’s Northwest Fisheries

Science Center in supporting salmon recovery efforts. We focused

on the center’s implementation of its Salmon Research Plan,

which establishes priorities to ensure that the most important scientific work is conducted. While the plan is an important step

toward meeting the center’s goal of strengthening its salmon

research program, we found a number of deficiencies. As a result,

we recommended that the center improve its peer review processes, implement comprehensive multiyear plans to measure

progress in meeting the goals of the Salmon Research Plan from

one year to the next, and develop better procedures for monitoring

and evaluating ongoing research and related costs. (See page 32.)

We also completed a review of NMFS’s plans to design and

construct the first of possibly four acoustically quiet, state-ofthe-art fisheries research vessels and found a number of

management control weaknesses. For example, the National

Oceanic and Atmospheric Administration (NOAA) has not

enforced the contract’s scheduling requirements, adequately

tracked program costs, fully documented the program’s management structure, or maintained an official contract file for the

acquisition. (Details regarding these and our other findings

appear on page 31.) 

We are currently evaluating methods used to enforce fisheries

management plans. We intend to monitor NOAA’s efforts to

increase the effectiveness of its marine resource management and

will follow up on actions it takes in response to our recommendations regarding the Northwest Fisheries Science Center and the

vessel acquisition program. 

CHALLENGE 9: CONTINUE TO

IMPROVE THE DEPARTMENT’S

STRATEGIC PLANNING AND

PERFORMANCE

MEASUREMENT IN

ACCORDANCE WITH THE

GOVERNMENT PERFORMANCE

AND RESULTS ACT

Congress and agency managers require relevant performance

measures and credible performance data to effectively fulfill their

oversight responsibilities with respect to federal programs. The

Government Performance and Results Act of 1993 was designed

to ensure the availability of such data by mandating that agencies

set goals for program performance and report outcomes measured against those goals. As the administration moves toward

integrating budget and performance information and using performance data to make funding decisions, the credibility of

reported performance results will be critical.

Since 1997 OIG has assessed Commerce’s efforts to implement

GPRA. To ensure the collection and reporting of accurate, appropriate, reliable, and useful data to decision makers, this office has

■ provided implementation advice and assistance,

■ monitored reviews by certified public accounting

firms of performance data contained in the annual

financial statements,

■ made presentations to departmental officials on the

importance of ensuring that performance-related

information is reliable,

■ given informal comments to the Department on

various GPRA-related documents, and

■ audited internal controls for selected data on

bureau performance.

Although we believe the Department has made progress toward

meeting the challenge of how best to plan and measure its performance, significant opportunities for improvement remain. For

one, Commerce should clearly articulate the level of reliability

that can be placed on the performance data it provides in its

Annual Program Performance Report to meet GPRA and other

reporting requirements. 

Also, our audits of several performance measures used by departmental units (BIS, NIST, NTIA, and USPTO) indicate a

widespread need for stronger internal controls to ensure accurate

reporting of performance data and improved explanations and

disclosures of results. For example, procedures should be established to ensure that (1) reported information is reconciled

against supporting data and (2) only data from the appropriate

time period is included in performance results. 

These issues are again emerging in our current audit of selected

performance measures at NOAA. We are concerned that—for the

measures we are evaluating—NOAA may need to (1) improve

internal controls, (2) restate data that was incorrectly reported in

the past, (3) provide additional disclosures and explanations of

performance results, and (4) assess the value of certain measures

to determine whether they should be dropped, revised, or

unchanged.

We will continue to evaluate performance measurement and

reporting at NOAA and other bureaus and, as warranted, make

recommendations to the Department and its operating units

regarding the accuracy, appropriateness, reliability, and usefulness of its performance data. 

11
CHALLENGE 10: EFFECTIVELY

MANAGE MAJOR

COMMERCE RENOVATION

AND CONSTRUCTION

PROJECTS

The Department has plans for numerous major3 renovation and

construction projects: 

■ NOAA has 27 projects scheduled or in process. These

include modernization of the National Ocean Service’s

Marine and Environmental Health Research lab in South

Carolina, and a National Marine Fisheries Service lab

in Hawaii. 

■ NIST will continue its multimillion-dollar program to

upgrade existing laboratories in Gaithersburg, Maryland,

and Boulder, Colorado, and to complete construction of

the Advanced Measurement Laboratory building, a new

facility in Gaithersburg, Maryland. 

■ USPTO is implementing its billion-dollar plan to

consolidate employees and operations in a new, fivebuilding facility under construction in Alexandria,

Virginia (see page 8). 

■ The Census Bureau intends to construct two buildings at

its headquarters in Suitland, Maryland, to provide

employees with safe, modern facilities.

■ Commerce plans to modernize its headquarters building

in Washington, D.C.

Major Construction and Renovation

Projects (Current and Planned as of

9/30/02)

Operating Unit Number of Projects EstimatedCosts

(in millions)

NOAA 27 $558

NIST 2 $235

USPTO 1 $1,200

Census Bureau 1 $340

Office of the Secretary 1 $360

Note: A project may include more than one building.

Source: Commerce Office of Real Estate Policy and Major Programs. 

Effective renovation and construction management is a critical

challenge for the Department because of the numerous inherent

risks involved in planning and managing large, costly, and complex capital improvement and construction projects.

Departmental leadership and OIG oversight are needed to maximize Commerce’s return on its investment in these projects.

Past OIG reviews of major renovation and construction ventures

have demonstrated that up-front oversight—that is, close monitoring during planning and implementation—is essential.

Detecting and addressing potential problems during the developmental stages rather than after a project is completed save

time and money. For this reason, we plan to actively monitor the

progress of some of the Department’s current and planned construction projects at Census, NIST, NOAA, USPTO, and other

locations as appropriate.

12

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

3 Projects costing $2 million or more are considered major.
September 2002/Semiannual Report to Congress 13

Department of Commerce

Organization Chart
14 U.S. Department of Commerce/Office of Inspector General

BUREAU OF INDUSTRY

AND SECURITY

SOME KEY RECOMMENDATIONS FROM

EXPORT CONTROL REVIEWS REMAIN

UNIMPLEMENTED

As required by the National Defense Authorization Act, we conducted our annual follow-up review on the status of recommendations regarding dual-use export

controls for which Commerce operating units—principally the Bureau of

Industry and Security—are responsible. This year’s review looked at recommendations from the three reports we have issued thus far: (1)

Improvements Are Needed in Programs Designed to Protect Against the

Transfer of Sensitive Technologies to Countries of Concern (March

2000), (2) Management of the Commerce Control List and Related

Processes Should Be Improved (March 2001), and (3) BXA Needs to

Strengthen Its ECASS Modernization Efforts to Ensure Long-Term

Success of the Project (February 2002). 

These Department-specific assessments are conducted in addition to

the annual interagency reviews we perform with the inspectors general of Defense, Energy, State, and the Treasury in consultation with

the directors of the CIA and FBI. 

We found that, while BIS has taken action on some of our recommendations, key recommendations from all three reports have yet to

be acted on. With the exception of one open item, BIS has responsibility for implementation of the recommendations.

REVIEW RESULTS

March 2000

The focus of our first-year NDAA review was enforcement and implementation of

the deemed export regulations,4 as well as industry and federal compliance with them;

the effectiveness of the Visa Application Review Program; and BIS’s success at supporting

federal efforts to monitor foreign investment in U.S. companies. We made 24 recommendations to BIS, NOAA, ITA, and NIST for improving programs designed to protect against the

transfer of sensitive technologies to countries of concern. Five of our 24 recommendations remain open.

Four of these were addressed to BIS, and concern the need to (1) discuss with NOAA the applicability of deemed

4 According to the Export Administration Regulations, any release to a foreign national of technology or software subject to the regulations is deemed to be an export

to the home country of the foreign national. These exports are commonly referred to as “deemed exports,” and may involve the transfer of sensitive technology to foreign visitors or workers at U.S. research laboratories and private companies.

The

Bureau of

Industry and

Security is primarily responsible for administering and enforcing

the nation’s system for controlling

exports of sensitive dual-use goods and

technologies. BIS’s major functions

include formulating and implementing export

control policy; processing export license applications; conducting various policy, technical,

and economic analyses; promulgating regulations;

conducting industry outreach; and enforcing the

Export Administration Act and regulations. BIS’

activities also include promoting federal initiatives

and public-private partnerships across industry sectors to protect the nation’s critical infrastructures. BIS

is divided into two units: 

Export Administration implements U.S. export control and nonproliferation laws and policies through

export licensing, commodity classifications, and advisory opinions; technical, economic, foreign

availability, and policy analyses; promulgation of

regulations; and industry outreach. It also conducts

various defense industry activities and enforces

industry compliance with arms control treaties.

Export Enforcement participates in reviews

of export license applications and conducts

criminal and administrative investigations

relating to the export control portions of

the Export Administration Act and

regulations. It also administers and

enforces the antiboycott provisions of the act and

regulations.
September 2002/Semiannual Report to Congress 15

Bureau of Industry and Security

export controls to NOAA’s activities; (2) work with the

National Security Council to review the deemed export policy

and process; (3) improve the investigative tracking system

regarding visa referral information; and (4) periodically assess

the visa application review program and develop performance

measures to help determine whether resources dedicated to the

program are justified. 

The remaining open recommendation urged NOAA to establish

procedures for ensuring that any technical information or knowhow it releases to foreign nationals complies with federal export

licensing requirements.

March 2001

We examined BIS’s policies and procedures for the design, maintenance, and application of the Commerce Control List (CCL),

which specifies the commodities, software, and technologies subject to Export Administration Regulations. We made 14

recommendations for improving the list and related operations;

the bureau has fully implemented only 5. The remaining open

items deal with improving various aspects of the CCL, the commodity classification process, commodity jurisdiction

determinations, and licensing of night vision technology.

February 2002

Our most recent review assessed BIS’s efforts to modernize its

Export Control Automated Support System (ECASS) for dualuse export licensing. We examined whether the bureau had

adequately considered life-cycle resources and business process

changes; developed a realistic system-design schedule; and

established an infrastructure for monitoring costs, schedule, and

deliverables. BIS has fully implemented only 4 of our 13 recommendations. Action is still needed to (1) factor into ECASS, as

appropriate, changes proposed in the 1998 business process

reengineering study and a 2001 internal licensing task force

report; (2) determine needed resources, potential funding mechanisms, and feasibility of established time frames; (3) validate systems requirements; (4) document security requirements and

calculate associated costs; (5) revise and approve the project

management plan; (6) complete target architecture and select a

location for ECASS; (7) determine whether the Department of

Defense can use ECASS for its licensing needs; (8) work with

other licensing agencies to develop a central data repository for

records pertaining to reviewed license applications; and (9)

develop an interagency agreement that documents the responsibilities and coordination of all dual-use licensing agencies. 

PROMPT ACTION NEEDED

Given BIS’s key role in administering the dual-use export control

process, we believe the bureau should take quick action to

address all of the open recommendations.

Status of OIG Recommendations

Fiscal Number of Number 

Year Recommendations Closed

2000 24* 19

2001 14 5

2002 13 4

* Combined number of recommendations made in our March 2000 report on programs designed to protect against transfer of sensitive technologies to countries

of concern, made to BIS, NOAA, ITA, and NIST.

In addition, we asked BIS to look into our concerns about the

adequacy of export license application review by one of the other

federal agencies involved in the process and to open discussions

with that agency about its limited analysis of license applications.

(OFFICE OF INSPECTIONS AND EVALUATIONS: IPE-15290)
16 U.S. Department of Commerce/Office of Inspector General

EDA helps American businesses generate

employment and America’s communities

weather adverse economic events or

trends. To fulfill its mission, EDA has

developed eight assistance programs, which it refers to as

“investment programs,” that

provide financial assistance

through grants to state and

local governments and

nonprofit economic development organizations.

The monies are used to

fund such efforts as

economic development

planning, public works

projects, and revolving

loan funds.

REVOLVING LOAN FUNDS

EDA’s Economic Adjustment Program provides, among other things, grants

to capitalize revolving loan funds (RLFs). As of September 30, 2002, there

were 611 RLFs with a total of $550 million in federal funds. The program

focuses on communities and regions that have experienced or are threatened

by serious structural damage to their underlying economic base. RLFs offer

loans to local businesses that otherwise cannot secure sufficient private financing.

During this semiannual period we completed audits of 9 revolving loan funds, several done at the request of EDA, and found that of these, 6 have excess cash reserves

resulting from lack of demand for loans and 8 committed significant violations of program regulations including mismanagement of funds. Recommendations to correct these

problems involve $9.2 million in funds that could be put to better use. EDA management has

been active in implementing our recommendations.

AUDIT PREVENTS INELIGIBLE LOANS

BEING MADE IN OKLAHOMA

In February 1999 an Oklahoma development district received a $350,000 Long-Term Economic Development (LTED) grant to capitalize a revolving loan fund. The grant agreement required the district to provide a $117,000 matching share, which brought the RLF’s total

capitalization to $467,000. Like other RLF grant agreements, it also required that the recipient meet grant disbursement milestones.

ECONOMIC DEVELOPMENT

ADMINISTRATION

EDA Assistance Programs

Public Works Program

Economic Adjustment Program

Research and National Technical

Assistance Program

Partnership Planning for Economic

Development Districts, Indian Tribes,

and Other Eligible Areas

Short-Term Planning to States,

Sub-State Planning Regions,

and Urban Areas

Technical Assistance Program (Local)

University Center Program

Trade Adjustment Assistance Program

The

Economic

Development

Administration was established by the Public Works and

Economic Development Act of 1965

to generate new jobs, help retain existing jobs, and stimulate commercial and

industrial growth in economically distressed

areas of the United States. EDA continues to

fulfill this mission under the authority of the

Economic Development Administration Reform

Act of 1998, which introduced the concept of

Comprehensive Economic Development

Strategies, a local planning process designed to

guide the economic growth of an area. Based on

these locally and regionally developed strategies,

EDA works in partnership with state and local governments, regional economic development districts,

public and private nonprofit organizations, and

Indian tribes to help distressed communities

address problems associated with long-term economic deterioration and recent, severe economic

dislocations, including recovery from the economic impact of natural disasters, the closure of

military installations and other federal facilities, changes in trade patterns, and the

depletion of natural resources. EDA provides eligible recipients with technical

assistance, as well as grants for public

works and economic development,

planning, training and research,

and economic adjustment.
September 2002/Semiannual Report to Congress 17

Economic Development Administration

During our September 2001 audit of the RLF (ATL-14301-1) to

determine why the district had not drawn down any of the grant

funds, we found that the lack of funds usage (therefore, failure to

meet RLF disbursement milestones) resulted from a lack of

demand for RLF program loans. We recommended, therefore,

that EDA terminate the award and deobligate the grant funds.

EDA concurred and complied with our recommendations.

The district, however, appealed the agency’s decision, stating that

it had approved two loans at about the time EDA terminated the

grant and claimed that the RLF was legally obligated to fund the

loans. EDA’s appeal decision instructed the district to provide a

legal opinion that the two loan commitments were legally binding and certify that the loans were made in compliance with

program requirements. The decision also provided for an OIG

audit of the two loan applications. We conducted our audit in

May 2002 and determined that neither application was in compliance with RLF requirements, which generally do not permit

loans to borrowers who can obtain financing from private

lenders, because both applicants were eligible to obtain private

funding. In fact, one borrower had been offered a loan with an 8.5

percent interest rate from a local bank but accepted the RLF loan

because its interest rate was 6 percent. The second borrower

applied for funding to expand his company but was shown during our audit to have already obtained alternative financing.

Based on our findings, we recommended that EDA neither obligate nor disburse the $300,000 federal share requested by the

district to fund the two loans. While it disagreed with our interpretation of program requirements, the district concurred with

our audit findings, as did EDA. Implementing our recommendation will allow $300,000 in EDA funds to be put to better use.

(ATLANTA REGIONAL OFFICE OF AUDITS: ATL-14301-2)

TERMINATION FOR CAUSE

PROMPTED BY GROSS

MISMANAGEMENT OF OHIO

LTED GRANT

At EDA’s request we performed an audit of an RLF established

in 1980 through a $400,000 LTED grant awarded to an Ohio city.

Our objective was to determine the fund’s current assets so that

EDA could terminate the award and recoup the fund balance. 

The audit, conducted in February 2002, was our second examination of this RLF. The first, conducted in 1991, revealed

management and compliance deficiencies so serious that we recommended EDA phase out the grant and obtain repayment of the

RLF balance—$178,769 (DEN-0298). EDA concurred with

these recommendations, but has since been unable to obtain

either the balance or the documents needed to terminate the grant. 

In November 2001 EDA asked the city to calculate the current

dollar value of the RLF so that termination could be finalized, but

the city claimed it was unable to do so. EDA then asked us to

determine the RLF balance due.

City failed to account for RLF assets

Our audit found that the city failed to maintain adequate records

to account for RLF principal, interest earned, loan repayments,

and other financial aspects of the EDA award. The RLF agreement obligated the city to submit semiannual reports to EDA, but

it had not done so for a decade. Its last report, issued in 1992,

revealed total RLF assets of $335,540: $47,002 in cash and

$288,538 in outstanding loans. During our 2002 audit we found

that the city had two accounts relating to the RLF with combined

assets of $216,570 as of December 31, 2001. However, we had

no basis to conclude that the balances in these accounts accurately reflected the current RLF balance because the city was unable

to provide us with any transaction histories to allow us to determine whether loan repayments and interest were properly

credited or whether any inappropriate withdrawals had been

made.

City failed to adequately pursue

defaulted loans

In 1992 the city reported three defaulted loans totaling $62,307

and three current loans for $226,231. Our review of the 1992 loan

files indicated that the city did not adequately pursue collection

on the defaulted loans. Of the then-current loans, one has since

been paid in full and the other two are in default. Two of the

defaulted borrowers, who together owe the RLF more than

$140,000, still operate the businesses for which the loans were

made. Although the city appeared to make some initial collection

efforts in 1993, there was no information in loan files to document whether attempts have been exhausted or collections made.

Because the city neglected its obligations under the RLF award

by failing to pursue collection in a prudent and timely manner, we

have held the city accountable for the total amount of the defaulted loans in computing the value of the RLF.

Fund administrator improperly borrowed

$38,223 from the RLF

We found that between 1991 and 1993, the city improperly

allowed its loan administrator to borrow $38,223 from the RLF

to continue operations over a 2-year period, and there was no evidence of repayment. We therefore determined that the city should

be held accountable for the amount borrowed, which was included in the cash asset total we used to calculate monies due to EDA.
18

Economic Development Administration

U.S. Department of Commerce/Office of Inspector General

$513,480 due to EDA on termination of

the RLF

When a recipient fails to comply with the conditions of an RLF

grant and fails in its fiduciary responsibilities as trustee, EDA

may terminate the grant for cause and recover its fair share of the

RLF’s value. Due to the seriousness and persistence of the city’s

compliance failures, we recommended that EDA take immediate

action to terminate the grant and obtain reimbursement for the

current value of the RLF, which we calculated to be $513,480,

based on the 1992 fund balance of $335,540 plus imputed interest of $l77,940 as of December 31, 2001. EDA concurred with

our recommendations. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-14962)

NEW YORK RLF MAINTAINED

EXCESS CASH RESERVES FOR 11

YEARS

In September 1979 EDA awarded a $2,223,000 LTED grant to a

city in New York to establish an RLF. One year later the award

was amended to add $1,777,000, increasing the RLF’s capitalization to $4 million. In May 1997 EDA approved the city’s request

to amend the grant agreement, allowing the city to use RLF funds

to make loan guarantees. 

At EDA’s request we performed a financial and compliance audit

during April 2002 to determine (1) the financial status of the

RLF; (2) the city’s compliance with applicable federal laws and

regulations, and terms and conditions of the grant; and (3)

whether specific administrative costs charged to the RLF were

allowable. 

Our audit disclosed that the fund had $2,375,749 in excess cash

as of March 2002 and had maintained excess funds for at least

11 years, in violation of EDA guidelines and RLF program

objectives. The excess resulted from the city’s prolonged low

level of RLF activity: the city ceased making loans in early

1994, and only five loan guarantees have been made since 1997.

Although the city has recently identified several opportunities

for rejuvenating the program, we recommended that EDA

require the city to 

■ deposit the $2,375,749 in excess funds into a separate,

interest-bearing account and remit the interest monthly to

the U.S. Treasury; 

■ use the excess funds within 6 months to make direct

loans or loan guarantees in accordance with RLF

program objectives; and 

■ remit unused excess funds in the account after 6 months

to the U.S. Treasury.

Our audit also disclosed that the city was not in compliance with

several RLF administrative requirements regarding submission

of mandated RLF status reports and annual plan certifications to

EDA. In addition, $57,977 in unsupported administrative costs

was charged to the RLF during the audit period. To correct the

administrative findings, we recommended that EDA require the

city to submit annual RLF plan certifications, ensure that semiannual status reports are accurate and timely, and reimburse the

fund for $57,977 in unsupported administrative costs.

City officials agreed with the audit findings, noting that our recommendations either have been or would soon be implemented.

(ATLANTA REGIONAL OFFICE OF AUDITS: ATL-15125)

ARKANSAS DISTRICT CITED FOR

UNALLOWABLE LOANS,

UNCOLLECTED DEBT, AND

UNSUBMITTED DOCUMENTATION 

In 1978 an Arkansas economic development district received a

$720,000 Economic Adjustment Assistance grant to establish a

revolving loan fund with which to implement a comprehensive

economic adjustment program for nine Arkansas counties. No

local match was required. 

Our audit, conducted during April 2002, evaluated the district’s

financial management of the RLF and its compliance with applicable administrative requirements. Based on our examination of

16 loans active as of September 30, 2001, the following instances

of noncompliance were found:

■ From 1992 through 2001 the district awarded 16 loans;

12 of them had a $264,000 leverage shortfall. For the

remaining 4, although $565,000 was proposed as

leverage, the district did not confirm $294,000 of the

proposed amount. 

■ The district awarded three loans totaling $140,000 to

refinance existing debt, a use program requirements

generally prohibit. (Certain limited exceptions apply, but

they must be properly documented.) In addition, one of

the loans was in default.

■ The district failed to comply with the EDA requirement

that sound management procedures be used to collect

payments on RLF loans. Six loans awarded to five

borrowers from 1992 through 1999 lingered in long-term

default, with outstanding balances totaling $221,247 and

past due interest totaling $93,707. Two loans to one

borrower had been in default since October 1993, with

outstanding balances totaling $109,569 and past due

interest totaling $61,178; yet the district had failed to

take action to collect on the loans.
September 2002/Semiannual Report to Congress 19

Economic Development Administration

RLF Grants Improperly Awarded

to Refinance Existing Debt

(for period ending September 30, 2001)

Borrower Loan Amount Balance

1 $ 50,000 $ 40,036*

2 10,000 6,236

3 80,000 79,709

Totals $140,000 $125,981

*Loan in default at time of OIG audit.

RLF Loans in Default

(for period ending September 30, 2001)

Loan Past Due Principal 

Borrower Amount Interest Balance

1 $100,000 $50,473 $ 94,569

2 15,000 10,705 15,000

3 50,000 6,240 40,036

6 25,000 6,597 22,974

5 30,000 11,877 28,668

6 20,000 7,815 20,000

Totals $240,000 $93,707 $221,247

Note: Borrowers #1 and #2 are the same company.

■ From October 1, 1995, until September 20, 2001, the

district did not submit required financial reports. 

■ The district did not have written procedures or proper

documentation for monitoring and servicing RLF loans,

as required by EDA. Its loan files consistently lacked,

among other things, 

- loan applications and committee approvals; 

- evidence of leveraging or borrower equity,

or insurance; 

- credit checks and verification of funds used as

intended; and 

- records of correspondence with the defaulted

borrower.

We recommended that EDA require the district to (1) recall

$85,945 in outstanding balances on the two loans made to refinance existing debt; (2) confirm leveraging of $294,000 for two

RLF borrowers and ensure that future loans are properly leveraged; (3) pursue collection of $221,247 for six defaulted loans

and $93,707 for past due interest; (4) submit annual reports to

EDA in a timely manner; and (5) submit a revised RLF plan that

includes written procedures for monitoring and servicing its RLF

loans and handling defaulted loans. (DENVER REGIONAL

OFFICE OF AUDITS: DEN-15019)

EXCESS CASH RESERVES,

IMPROPER CLAIMS, AND

NONCOMPLIANT INDEPENDENT

AUDITS FOR MICHIGAN RLF

In 1979 a Michigan city received a $4.85 million LTED grant:

$1.8 million as a direct loan and $3.05 million for a land writedown program.5 In 1980 EDA transferred $1 million from the

write-down program to the city to establish an RLF to address

major industrial dislocations and consequent unemployment.

(EDA terminated the program’s remaining $2.05 million in

1983.) In 1988 $600,000 of an EDA RLF grant to the state of

Michigan was transferred to the city. Thus the RLF’s total capitalization was $1.6 million.

As of September 2001, the city reported having made 80 loans:

61 had been fully repaid, 14 were active, and 5 written off.

Income earned on the RLF had increased its capital balance to 

5 Land write-down: A subsidy offered when a development authority acquires a

property and sells/transfers it to a private developer for less than the acquisition

price as an incentive for business development. Example: if a city sells a

cleared land parcel to the developer for $1 instead of the assessed value of

$200,000, then the developer would have received a subsidy of $199,999 over

what was required to enable the project to proceed.

Lack of written documentation (for example, proof of fire insurance)

increases the risk that RLF funds are not being administered in accordance with EDA regulations, placing federal funds at risk.
20

Economic Development Administration

U.S. Department of Commerce/Office of Inspector General

about $2.9 million—$913,441 in outstanding loans and

$2,023,720 in cash.

We audited the RLF in February 2002 to evaluate the city’s financial management of the fund and its compliance with

administrative and loan documentation requirements. Our audit

disclosed excess cash reserves, improper administrative charges,

and inadequate audit coverage. 

$749,430 in excess cash reserves

The city’s capital utilization rate for September 2001 was 49 percent—far less than EDA’s required 75 percent utilization. The 14

active loans represented an outstanding principal balance of

$913,441, and $540,000 was recorded against loan commitments,

for a total capital utilization of $1,453,441. This left $1,483,720

available for new loans, more than twice as much as the 25 percent reserve permitted by EDA. 

RLF Financial Status as of September 2001

RLF capital base $2,937,161

Capital utilization –1,453,441

Available for new loans = $1,483,720

Cash balance allowed by EDA –734,290

Excess Cash Reserves = $ 749,430

The city agreed with our finding of excess cash reserves but

requested that EDA delay implementing our recommendation

until after its September 2002 semiannual report, claiming that all

excess cash reserves were currently earmarked for loans:

$440,000 currently approved but not yet disbursed and applications totaling $900,000 awaiting review. Under the

circumstances, we recommended that EDA require the city to

sequester any excess cash reserves as of September 30, 2002, in

an interest-bearing account and remit interest earned on the

account to the U.S. Treasury.

$197,323 in improper

administrative expenses 

Administrative costs claimed, totaling $197,323, were improperly based on a percentage of the RLF’s interest income rather than

actual costs incurred. Although the city maintained meticulous

loan files and the claimed expenses appear low compared to the

actual costs required to administer the program, the lack of documentation for costs claimed is not justified. 

The city agreed and subsequently provided documentation that

the claimed amount actually had been incurred. It also stated

that—as we had recommended—it had revised its accounting

system to record administrative costs in the general ledger. In our

final report we recommended that EDA ensure that the city’s

administrative cost claims are based on actual expenses incurred,

not estimates. EDA concurred. 

Independent audits lacked

required disclosures

The city’s annual audits were not conducted in accordance with

OMB Circular A-133, as required by the terms and conditions of

the EDA grant, and therefore excluded EDA-required disclosures

such as a schedule of federal assistance and reports on internal

controls and compliance with laws and regulations. 

We recommended that EDA require the city to obtain annual

audits that comply with OMB Circular A-133. The city stated that

it was unaware of its noncompliance and agreed to obtain the

required audits for all future periods. (DENVER REGIONAL

OFFICE OF AUDITS: DEN-14963)

U.S. VIRGIN ISLANDS AUDIT

DISCLOSES ADMINISTRATIVE,

FINANCIAL, AND REPORTING

PROBLEMS

An economic development agency in the U.S. Virgin Islands

administers two EDA revolving loan funds. The first, established

in 1986 with a Sudden and Severe Economic Dislocation (SSED)

grant of $300,000 and a recipient match of $100,000, was created to provide needed financing for new and existing businesses

in economically depressed areas of the islands. The second,

established in 1990 with a $500,000 award, was provided to

assist businesses adversely affected by Hurricane Hugo. As of

March 2002 the RLFs had made 34 loans totaling $1.3 million;

however, no loans from either fund had been made since 1994.

At the request of EDA, in April 2002 we conducted an audit to

determine the financial status of the two RLFs and the recipient’s

compliance with applicable federal laws and regulations, EDA

grant terms and conditions, and RLF plans. Our audit uncovered

numerous problems with the administration and financial management of the RLFs:

■ The recipient’s accounting records were inadequate and

did not support the cash balance it reported for the two

RLFs (roughly $971,000). 

■ Contrary to EDA requirements for the revolving loan
September 2002/Semiannual Report to Congress 21

Economic Development Administration

fund program, the RLFs carried excess cash reserves for

3 consecutive years. At the time of our audit the excess

cash balance was $576,000. 

■ Of the 34 loans made, 17, totaling $617,000 (99 percent

of outstanding principal), were in default. Of that 17, 5

had been in default for more than 8 years; 11 were made

to companies that have since gone out of business; 3

were made despite the loan officer’s recommendations

that they be denied; and 1, because it was made to a

legislator, created the appearance of conflict of interest. 

Our audit also disclosed that the recipient regularly failed to meet

RLF reporting requirements, and there was no evidence that

annual RLF plan certifications were ever prepared.

To ensure that the RLF is properly managed and accounted for in

the future, we recommended that EDA require the recipient to

implement sound lending practices to manage the RLF portfolio

and include specific audit procedures in its annual operational

audit under the Single Audit Act. We also recommended that the

recipient be directed to return $499,680—the agency’s share of

excess RLF cash—to the U.S. Treasury.

The recipient agreed with our findings regarding mismanagement of the RLF, but noted that the problems had occurred

under a previous administrator and pledged to improve operations in the future. (ATLANTA REGIONAL OFFICE OF

AUDITS: ATL-15126)

LACK OF LOAN ACTIVITY FUELS

ACCUMULATION OF $1.5 MILLION

IN EXCESS CASH RESERVES FOR

WISCONSIN RLF

In September 1985 EDA awarded an $800,000 LTED grant to a

city in Wisconsin to establish a revolving loan fund that—with the

city’s required match of $400,000—was capitalized at $1.2 million. The RLF targeted a part of the city plagued with

long-standing economic distress and high rates of unemployment

and business failure. Its purpose was to fund small business expansion and create jobs to replace those lost from business closures or

relocations. The RLF is administered by a local development corporation that operates a total of six funds for the city. As of

September 30, 2001, the RLF had total assets of $2,153,000—

$2,030,876 in cash and $122,124 in outstanding loans.

We performed our audit in December 2001 to evaluate the financial management of the RLF and the grantee’s compliance with

applicable RLF administrative requirements. We found that the

city was not making use of the fund—the outstanding loan

amount represented only 6 percent of the RLF’s available funding rather than the 75 percent utilization rate required by

EDA—and no loans had been made in 6 of the last 7 years. In

the meantime the fund had been accumulating substantial excess

cash reserves and the cash balance had grown by more than

$600,000 in the prior 4 years. 

In May 2001 the grantee requested that EDA allow expansion of

the RLF project area to include the entire city. However, the city

is already served by two non-EDA revolving loan funds that

together have some $41 million available for lending. EDA’s

grant terms and conditions require that its RLF awards not duplicate programs funded by other sources; therefore we

recommended that the agency review the city’s request to ensure

that it will not duplicate existing loan programs.

We also recommended that EDA require the city to immediately

sequester the RLF’s $1.5 million excess cash balance in a separate, interest-bearing account and remit the interest to the U.S.

Treasury. (DENVER REGIONAL OFFICE OF AUDITS: DEN14885)

FOLLOW-UP OF 1994 AUDIT

REVEALS OLD AND NEW

PROBLEMS WITH ARKANSAS RLF

A planning and development district in east Arkansas received an

LTED grant for $500,000 in September 1982 to establish a

revolving loan fund. Over the years, EDA twice amended the

original grant, ultimately increasing the federal share to

$2,011,747. With a district match of $136,402, total RLF capitalization amounted to $2,148,149. 

In 1994 we audited the RLF to assess the district’s financial management and compliance with EDA’s administrative

requirements. We found the district’s handling of the RLF was

noncompliant in several respects. Specifically, the recipient

maintained excess cash balances in the RLF, and insufficient loan

documentation and inadequate accounting systems exacerbated

the likelihood of loan losses.

During this semiannual period our follow-up audit of the

Arkansas RLF program disclosed that not only had the district

failed to correct the deficiencies we previously noted but further

mismanagement was evident. The district continues to carry

excess cash reserves and lacks proper loan procedures and documentation. The district also (1) inappropriately used RLF funds

to refinance existing debt, (2) had a leverage shortfall for nine

loans, (3) did not confirm millions of dollars in leverage claims,

and (4) did not actively pursue collection of defaulted loans. In

addition, the district provided inaccurate semiannual reports to
22

Economic Development Administration

U.S. Department of Commerce/Office of Inspector General

EDA, including a September 2001 report that overstated the

RLF’s cash balance by $1.7 million. 

Evidence of Mismanagement

Disclosed by 2002 Audit

Noncompliance Number of Loans Amount

Refinanced debt 7 $679,718

Leverage shortfall 9 $391,335

Unconfirmed leverage 24 $5,000,000

Unpursued defaulted loans 7 $154,792

We recommended that EDA require the district to take the

following actions:

1. Return $147,490 in excess cash reserves to EDA. 

2. Recall $505,947 in outstanding debt on the seven

ineligible loans that were made to refinance

preexisting debt.

3. Confirm leveraging of $5 million for 24 RLF borrowers

and ensure that future loans are leveraged adequately.

4. Pursue defaulters for collection of principal and past due

interest.

5. Work with its accounting firm to ensure that its

semiannual reports are accurate and reconcile to RLF

financial statements. 

6. Revise its RLF plan to specify written procedures for

monitoring and servicing loans, handling defaults,

producing accurate reports, and maintaining required

loan documentation.

The district agreed to return the excess cash reserves to the government. (DENVER REGIONAL OFFICE OF AUDITS:

DEN-14884) 

AUDIT OF PENNSYLVANIA RLF

DISCLOSES EXCESS CASH AND

FINANCIAL MANAGEMENT ISSUES

The closing of three U.S. Navy facilities in eastern

Pennsylvania prompted EDA to award a $2.7 million Sudden

and Severe Economic Dislocation grant to a local industrial

development authority in April 1993. The grant included $1.6

million to establish a revolving loan fund and required the

authority to provide a $750,000 match. The RLF was established to assist defense-dependent businesses convert to

non-defense-related ventures and to help other businesses create new jobs for dislocated workers. 

We performed an audit during April 2002 to determine (1) the

financial status of the RLF, (2) the fund administrator’s compliance with applicable laws and regulations as well as with the

terms and conditions of both the EDA grant and the RLF plan,

and (3) the propriety of administrative costs charged to the RLF.

Our audit disclosed that the RLF had $735,048 in excess cash

as of March 2002 and had retained excess funds for three

consecutive semiannual periods, contrary to EDA guidelines

and RLF program objectives. The excess exists because the

grantee has not made enough new loans in recent years

to expend revenue generated by loan repayments and investment income.

In response to our draft report, the development authority

advised us that a recent amendment to its RLF plan would allow

it to lend up to $1.31 million to a local firm for a term of 15

years, thereby eliminating the excess cash balance. While we

acknowledge that the amendment provides the RLF the authority to make this previously undisclosed loan, we are concerned

about its high dollar value and lengthy term, as well as the fortuitous timing of the proposed transaction. Accordingly, if the

loan is approved, we plan to conduct a follow-up audit to determine whether it complies with all applicable RLF eligibility

requirements. Otherwise, our initial recommendation—that

EDA recoup the $500,458 federal share of the excess cash—

should be promptly implemented.

Additional Findings

Our audit also disclosed that the fund administrator has not complied with certain other RLF administrative requirements.

Specifically, it did not record $16,410 in RLF loan fees as income

or deposit this income into the RLF account and did not submit

required RLF status reports to EDA for three consecutive semiannual periods. Additionally, the grantee has not submitted

required annual RLF plan certifications to EDA and erroneously

charged $4,875 in administrative costs to the RLF.

The administrator has since deposited the $16,410 to the RLF

account and reimbursed the fund for the $4,875 in incorrect

administrative charges. To correct the other deficiencies, we recommended that EDA direct the grantee to submit annual RLF

plan certifications and RLF status reports that are complete, accurate, and on time. (ATLANTA REGIONAL OFFICE OF AUDITS:

ATL-15123)
September 2002/Semiannual Report to Congress 23

Economic Development Administration

PUBLIC WORKS PROGRAM

The Public Works Program (PWP) empowers distressed communities in economic decline to revitalize, expand, and upgrade

their physical infrastructure to attract new industry, encourage

business expansion, diversify local economies, and generate or

retain long-term, private sector jobs and investment. In many

cases, Public Works Program projects are used to upgrade or

expand an area’s economic infrastructure to support the next generation of industry or commerce. Whenever possible, this

program seeks to redevelop existing facilities and industrial/commercial locations. EDA encourages such redevelopment projects

because they promote sustainable economic development by taking advantage of readily available infrastructure and markets.

During this reporting period we audited two PWP grants resulting in recommendations involving $1.1 million that could be put

to better use and $98,000 in questioned costs.

DUPLICATE FUNDING JUST ONE

OF SEVERAL ISSUES REVEALED

IN AUDIT OF WASHINGTON

ROAD PROJECT

In August 1997 EDA awarded a public works grant to a city in

Washington State for construction of a two-way access ramp

extending from a bridge, over railroad tracks near the city’s

marine terminals, and connecting to an existing roadway system. 

The project, which also included construction of several surface

streets,6 was intended to improve access to a proposed 29-acre

industrial campus of a major pharmaceutical company. The

enhancements would also relieve vehicle congestion and improve

traffic flow in the area. 

Total estimated cost of the project was $12.5 million, of which

the EDA grant would cover $3 million and the city and other

local contributors would provide $9.5 million. By late 2001 the

city had substantially completed the construction project, but

EDA had not yet disbursed any of the grant funds. In addition, the

city had exceeded the approved EDA budget by about $6.4 million, with the bulk of the overrun (nearly $5.3 million)

attributable to land and right-of-way expenditures, which had

been greatly underestimated in the original budget proposal.

We performed an audit to determine why no EDA funds had been

disbursed and whether the grantee’s financial management systems complied with federal and EDA requirements. We found 

that no funds had been disbursed because the city had yet to submit any cost claims against the grant. However, it had submitted

claims against—and received reimbursement from—a $10.3 million U.S. Department of Transportation grant it obtained through

the state transportation department for essentially the same

purpose as the EDA award. We found the city’s performance

under the terms of the EDA grant agreement to be deficient in

several respects.

First, the city failed to notify EDA of the DOT grant, despite the

award’s terms and conditions requiring such notification. City

officials reported that they sought the additional funding after

estimates of the project’s costs were revised upward (final costs

were $18.3 million). Although they contended that the EDA project manager knew of the DOT award, they could not supply

documentation showing that they had formally notified the

agency. We recommended that EDA amend its award agreement

to reflect the additional project costs and funding. 

Second, in meeting its cost-sharing requirement for the DOT

grant, the city counted costs that were applicable to its matching

share under the EDA grant. In accordance with federal regulations, we recommended that EDA accept for reimbursement only

those allowable costs that had not been already claimed against

the DOT grant.

City officials generally agreed with our audit findings and are

working with EDA to address our concerns and recommendations. (SEATTLE REGIONAL OFFICE OF AUDITS: STL-14837)

Picture of the "flyover" road (two-way access ramp) built above railroad

tracks near the marine terminals. 

6 A surface street allows access by traffic signal or stop sign or allows turns

across opposing traffic, as opposed to a freeway where access is provided only

by ramps and merges, with no stopping or turning across opposing traffic.
24

Economic Development Administration

U.S. Department of Commerce/Office of Inspector General

PROBLEMS WITH CALIFORNIA

PROJECT’S EDA AWARD

MIMIC THOSE FOUND IN ITS

MBDA PROGRAM

A southern California transportation authority representing a consortium of cities is conducting a $2.4 billion public infrastructure

improvement project to consolidate four access rail lines serving

two major ports into a single, rail-cargo expressway that links the

ports to transcontinental rail yards 20 miles away. In 1996 EDA

awarded to the lead city the first of five grants to fund a business

outreach program designed to help minority, female, and disadvantaged enterprises secure 22 percent of contract dollars

awarded by contractors building the transportation corridor. The

program is currently operating under the fifth award. 

The initial grant and follow-ons have been administered by the

city’s Minority Business Opportunity Committee (MBOC), a

component of the mayor’s Office of Economic Development.

This is the same organization that operates another Commercefunded program through a cooperative agreement from MBDA

(see page 28). 

We conducted an audit of three of the grants to determine

whether the recipient was achieving award objectives; claiming

reasonable, allowable, and allocable costs; and complying with

federal requirements and grant terms and conditions. Many of the

problems we uncovered are closely related to those we found

during our audit of the city’s MBDA-funded program. 

Summary of findings 

We found that the recipient consistently met its program objectives for the period under audit. It failed, however, to implement

key management controls for procurement and financial management systems.

Procurement. The city could not document the methods

used to acquire consulting services and establish compensation rates. Also, it awarded several personal services contracts to the consultant serving as MBOC director to

simultaneously head the EDA grant project. We concluded

that the consulting agreements were not competitively

awarded and duplicated other agreements the city had with

this same consultant. In addition the city could not demonstrate the reasonableness of the compensation in any of the

duplicative agreements; and the contracts for these services

were unclear and inconsistent in estimates of time, effort,

and rate of payment. They also omitted federally required

contract clauses. 

Financial management. The city could not adequately

document time and labor expenses charged to the grants

and failed to apply proper rates for fringe benefits and indirect costs.

Recommendations

Taken together, the procurement and financial management failings weakened the recipient’s control over the project and the

federal funds, leading us to question nearly a quarter of the costs

claimed against the three EDA grants and to recommend that

EDA take the following actions:

1. Disallow $215,868 in questioned costs and recover the

federal share—$97,897.

2. Advise the recipient that no costs claimed under the personal services contracts for the project director are

allowable for EDA participation.

3. Review the personal services contract currently in force

and a schedule of payments made and claimed under the

ongoing award and determine whether the conditions we

noted in our audit continue.

4. Given that the corridor project is nearing completion,

require the recipient to justify a continued need for a

project director. If one is needed, require the recipient to

demonstrate full compliance with minimum federal procurement standards.

Summary of Grants under Audit

Federal Rate Federal Share Total Estimated 

Grant Award Period (%) Not-to-Exceed Local Share Project Cost

A 02/01/98 - 09/30/99 68.3 $220,000 $102,011 $322,011

B 05/01/99 - 06/14/00 46.4 99,999 115,724 215,723

C 06/15/00 - 12/31/01 38.3 150,000 241,953 391,953

Totals $469,999 $459,688 $929,687
September 2002/Semiannual Report to Congress 25

Economic Development Administration

5. Confirm that the recipient is now completing required

certifications and utilizing city time sheets to support

time and labor charges, and ensure that approved rates

for fringe benefits and indirect costs are being

correctly applied.

Interagency funding issues

Because the financial and compliance deficiencies we found in

this audit parallel those identified in our audit of the MBDA

cooperative agreement, we also recommended that EDA coordinate with the Department’s grants officer and MBDA to resolve

findings common to both. (SEATTLE REGIONAL OFFICE OF

AUDITS: STL-14900-2)
26 U.S. Department of Commerce/Office of Inspector General

CENSUS LESSONS LEARNED

ESA’s Bureau of the Census conducts some of the most important work of our nation—taking

the measure of America through tabulations of population, economic, geographic, education,

housing, and other statistics. In our March 2002 semiannual report, we featured a special

report, Improving Our Measure of America: What Census 2000 Can Teach Us in

Planning for 2010 (Report No. OIG-14431). That report summarizes the findings of a

decade of monitoring, evaluating, and reporting on the work of the 2000 decennial

census. The report offers insights intended to help the bureau capitalize on its successes, improve areas of weakness, and anticipate emerging challenges as it plans

for Census 2010; the essentials of these insights have been condensed into 10 lessons learned:

1. Reach early consensus on the 2010 design to facilitate effective planning

and obtain sufficient funding.

2. Produce accurate, complete address lists and maps. 

3. Conduct a carefully targeted and aggressive public awareness campaign.

4. Strengthen quality control of nonresponse follow-up.

5. Implement clear policies and guidance for managing temporary staff.

6. Determine whether sampling has a role beyond measuring coverage.

7. Implement rigorous system and software development processes and effective

information security measures.

8. Upgrade and maintain contracting and

program management expertise.

9. Generate timely, accurate management and

operational information.

10. Mitigate potential disruptions and distractions

to the work environment and workforce.

During the 2000 decennial, the Census Bureau delivered 117

million questionnaires to houses, apartments, mobile homes, and

other sites. Recipients were asked to complete a questionnaire for their

household and mail it back to the bureau. For households that did not receive a

mailed questionnaire or did not return the form, the bureau conducted nonresponse follow-up

(NRFU)—dispatching enumerators to personally contact residents and obtain questionnaire

information. When enumerators were unable to contact the occupant of a unit, they were to

gather “proxy” information from knowledgeable neighbors under very specific Census guidelines. But proxy information tends to be incomplete and less reliable than information

received from an occupant of the household. Also, high percentages of questionnaires containing proxy-provided data indicates that enumerators were having problems collecting the

necessary data.

ECONOMICS AND

STATISTICS

ADMINISTRATION

The

Economics

and Statistics

Administration analyzes

economic developments, formulates policy options, and produces a

major share of U.S. government economic and demographic statistics. The

Chief Economist monitors and analyzes

economic developments and directs studies that have a bearing on the formulation

of economic policy. ESA has two principal

agencies:

Bureau of the Census is the country’s preeminent statistical collection and dissemination

agency. It publishes a wide variety of statistical data about the nation’s people and

economy, conducting approximately 200

annual surveys, in addition to the decennial

census of the U.S. population and the decennial census of industry.

Bureau of Economic Analysis prepares,

develops, and interprets the national

income and product accounts (summarized by the gross domestic

product), as well as aggregate

measures of international,

regional, and state economic activity.
September 2002/Semiannual Report to Congress 27

Economics and Statistics Administration

Quality data is critical to the integrity of the entire census.

Problems with data quality and quality control, when prevalent

and when identified while NRFU operations are still in progress,

can lead to large-scale reenumerations such as occurred in three

Florida counties.7

ALLEGED DATA FALSIFICATION

IN PHILADELPHIA

UNDERSCORES IMPORTANCE

OF QUALITY CONTROL

During this last semiannual period, we completed our review of

nonresponse follow-up operations in the North Philadelphia

Local Census Office. The purpose of our review was to examine

allegations that, to complete nonresponse follow-up on time,

some enumerators at that office falsified data included on Census

questionnaires. Because NRFU operations had concluded and the

office was closed, we were unable to determine the validity of the

charges. Nevertheless, we informed the bureau of the allegations

and asked that it evaluate the Philadelphia office’s nonresponse

follow-up data collected during the latter phase of the operation.

Upon completing its review, the bureau informed us that it

believed the quality of the data was satisfactory overall. But this

situation again highlights the importance of, and need for, the

bureau to strengthen quality control of nonresponse follow-up,

number 4 in our list of lessons learned.

In our review of this situation, we also sought to determine

whether enumerators complied with Census Bureau procedures

for collecting data and performing quality control checks; we

found several conditions regarding data quality and quality control. Some enumerators did not follow prescribed procedures

regarding the number of attempts to make to collect information

from occupants, and they arbitrarily used proxies when making

personal visits. Also, the number of suspect questionnaires we

examined indicated that crew leaders, too, failed to follow procedures. In addition, reinterviewers did not follow procedures when

reviewing questionnaires for completeness and accuracy. We

believe these findings warrant the bureau’s attention. In this and

previous OIG reports, we highlighted actions the bureau needs to

consider to better ensure data quality and control for Census 2010:

■ Continue to select a sample of questionnaires for

reinterview throughout nonresponse follow-up. 

■ Improve local offices’ handling of reinterview forms to

ensure that selected questionnaires are verified. 

■ Separate the reinterview process from the field operation

it is evaluating. 

■ Develop a management reporting process for

quality assurance. 

INVESTIGATIVE

HIGHLIGHTS

FORMER CENSUS EMPLOYEE

CONVICTED OF THEFT OF

DEBIT CARDS

We previously reported the arrest of a former Census field representative in Santa Ana, California, on charges that she had cashed

16 debit cards given to her for use as incentives for survey participants. (See March 2002 issue, page 91.) On April 5, 2002, the

defendant was convicted of grand theft and embezzlement in

Orange County Superior Court, and was sentenced to 45 days in

jail and 3 years’ probation, and ordered to make restitution of

$1,180 to the government. (DENVER FIELD OFFICE OF

INVESTIGATIONS)

7 U.S. Department of Commerce, Office of Inspector General, September 2000.

Reenumeration at Three Local Census Offices in Florida: Hialeah, Broward

South, and Homestead. Report No. ESD-13215.
28 U.S. Department of Commerce/Office of Inspector General

MBDA’S MINORITY BUSINESS OPPORTUNITY

COMMITTEE PROGRAM 

MBOC seeks to promote full inclusion of the minority business sector in the nation’s economic

infrastructure by providing a variety of programs to minority business owners interested in effectively marketing their products and services locally. MBOCs provide current business

information; identify potential sales opportunities, financing resources, and joint venture partners; and give other appropriate support to position these enterprises for long-term growth.

DEFICIENCIES AND NONCOMPLIANCE FOUND

IN CALIFORNIA MBOC OPERATIONS 

A city in southern California has received continuous funding to operate an MBOC since

January 1994, initially through noncompetitive joint project agreements and later through

competitively awarded cooperative agreements. The city assigned responsibility for the

MBOC award to the mayor’s Office of Economic Development, with MBOC staff assuming responsibility for day-to-day administration of the agreement.

We performed a financial and compliance audit of three budget periods funded under the

award—calendar years 1999, 2000, and 2001. Our purpose was to determine whether the recipient was performing in accordance with award objectives; claiming project costs that were

reasonable, allowable, and allocable; and maintaining administrative requirements and controls that

complied with award terms and conditions. Total estimated cost of the project for the 3 years was

$2,144,765, with the federal share not to exceed $1.3 million.

Overall, we found that the city’s performance was deficient in several respects and that it failed to comply with several

uniform administrative requirements and federal cost principles. As a result of the noncompliance, we questioned costs of $424,438

and recommended that MBDA reduce total allowable project costs by an additional $408,430 in program-related income. Our specific findings are detailed below.

Performance deficiencies

The city’s claims for a key performance measure—the dollar value of contracts and procurements generated for minority business

enterprises (MBEs)—were not always accurate or supported. Included in the count were opportunities produced by and claimed for

other programs administered by the MBOC with funding from other agencies—including Commerce’s Economic Development

Administration (see page 24) and the Department of Transportation (DOT). Claims for these opportunities resulted in multiple reports

of the same contracts and procurements and a consequent overstatement of the MBOC’s influence and accomplishments. 

In addition, the MBOC served a broader clientele than was authorized under the award, and its organization and operations were not

clearly established or documented. 

MINORITY BUSINESS

DEVELOPMENT AGENCY

The

Minority

Business

Development Agency

was created to help

minority-owned and

operated businesses achieve

effective and equal participation

in the American free enterprise

system, and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting

or providing market

opportunities for

minority businesses.
September 2002/Semiannual Report to Congress 29

Minority Business Development Agency

Opportunities Produced by or Claimed

for Other Funding Sources

Dollar Value of 

Procurements Claimed

Other Funding Source Total MBE

Calendar Year 1999

DOT/EDA $ 49,724,194 $ 4,872,043

DOT/EDA 249,715,762 110,743,217

DOT/EDA 115,301,272 115,301,272

DOT/EDA 42,518,194 40,267,949

DOT/EDA 722,840 17,600

DOT 47,011,598 3,143,838

Total for CY 1999 $504,993,860 $274,345,919

Calendar Year 2000

DOT $113,814,388 $ 12,116,262

DOT 36,277,372 2,848,410

DOT/EDA 132,130,868 41,180,356

DOT/EDA 166,845,170 54,763,227

HUD 1,884,073 245,351

Total for CY 2000 $450,951,871 $111,153,606

Calendar Year 2001

DOT/EDA $ 20,065,137 $ 1,944,910

DOT/EDA 391,134,061 132,092,858

Total for CY 2001 $411,199,198 $134,037,768

We recommended that the city be required to upgrade procedures

for compiling statistics to (1) ensure the reported dollar value of

contracts and procurements is complete, current, consistent,

accurate, and verifiable; (2) reflect only contracts awarded to

MBDA-defined minority business enterprises for the stated

reporting period; and (3) claim actions that result solely from

MBDA funding to the MBOC. 

In addition we recommended that the city be instructed that

efforts expended for beneficiaries other than those qualifying as

MBDA-defined minority business enterprises are unallowable

under the cooperative agreement and, if the MBOC continues to

serve ineligible beneficiaries, it must establish a cost accounting

system that identifies, segregates, and accounts for ineligible

activities and excludes those costs from MBDA award reporting.

We also recommended that the city be directed to clearly establish and verify the organizational structure and the procedures of

the award-funded entity and document ongoing operations.

Noncompliance

The city failed to comply with federal requirements for managing

financial assistance awards and adequately supporting costs

allowable for federal participation. Specifically, it did not implement key management controls for procurement, program-related

income, and financial management systems. This failure led to a

variety of problems: for example, consulting agreements were

duplicative and not competitively procured; program income was

not properly reported to MBDA and unused program income was

not used to offset allowable costs; time and labor expenses were

not adequately supported; and rates for calculating fringe benefits

and indirect costs were not properly applied. These deficiencies

and others we identified weakened the recipient’s control over

both the project and award funds. 

We recommended, for the years audited, that the Commerce

grants officer disallow $832,868 ($424,438 in questioned costs

plus $408,430 in offsets to allowable costs) of the $2,074,886 in

project costs claimed; recover the federal share ($499,746) of the

disallowed amount; and notify the city that 

1. it may not use MBDA funds to cover costs claimed and

incurred under inappropriately procured consulting

contracts;

2. it must comply with requirements for identifying,

recording, reporting, protecting, and using programrelated income in the approved budget period and

through official recipient accounts and financial

management and procurement systems; and

3. it must apply all unexpended program-related income

at year-end against total allowable project costs.

In addition we urged the grants officer to confirm the city’s claims,

made subsequent to our audit, that time and labor expenses are

being properly documented; and ensure that the city correctly calculates fringe benefits and indirect costs charged to the award.

Interagency funding issues

The financial and compliance deficiencies we found in our audit

of the MBDA cooperative agreement parallel those uncovered in

a separate audit of EDA grants the city is using to fund a business

outreach program, also operated by that city’s MBOC (see page

24). Therefore, we recommended that the Department’s grants

officer coordinate with MBDA and EDA in overseeing the effective and timely resolution of issues common to both awards.

(SEATTLE REGIONAL OFFICE OF AUDITS: STL-14900-1)
30 U.S. Department of Commerce/Office of Inspector General

TRAVEL CARD PROGRAM AT OAR’S

ENVIRONMENTAL TECHNOLOGY

LABORATORY IS GENERALLY SOUND,

BUT COULD BENEFIT FROM TIGHTER

INTERNAL CONTROLS

As part of our focus on government charge card operations at Commerce, we

completed an assessment of the travel card program at the Environmental

Technology Laboratory (ETL)—a component of NOAA’s Office of

Oceanic and Atmospheric Research (OAR). 

The General Services Administration began the government travel card

program to control travel payments and expenses. Regulations mandate that federal employees use the card when on official travel,

unless they have been exempted from doing so. Employees are

responsible for all costs charged. All uses other than for official travel are strictly forbidden. Those who misuse the card or fail to pay

undisputed amounts are subject to disciplinary action, and can have

the cards canceled and their wages garnished.

Our audit sought to determine whether ETL’s internal controls over

travel cards adequately ensured proper use and prompt payment by

employees. We focused on charges incurred during FY 2001.

We found that with few exceptions, ETL employees used the travel card

appropriately and paid their bills on time. However, certain internal controls were not strictly implemented, a situation we believe leaves open the

possibility for problems. Specifically, we noted the following:

1. ETL did not have a list of all cardholders, so managers could not readily

identify which employees had cards and ensure that the cards were issued only

to those who truly needed them. 

2. When cardholders left ETL employment, the laboratory did not always send

copies of their destroyed cards to the travel card program coordinator—a required

procedure that helps ensure departing employees no longer have access to their travel

card accounts. 

3. Three ETL employees used their travel card to pay for non-travel-related business expenses such as

journal subscriptions, which should properly have been charged to purchase cards. 

4. Three employees charged conference registration fees to their travel cards. These costs are expenses of the office and can

be paid directly by the government agency.

To strengthen ETL’s monitoring of the travel card program, we recommended that ETL management develop and keep current a list of

cardholders; take prompt action to close travel accounts of former employees by submitting destroyed cards and appropriate paperwork

NATIONAL OCEANIC

AND ATMOSPHERIC

ADMINISTRATION

The

National

Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the management of marine

resources; provides weather services; and

manages worldwide environmental data.

NOAA does this through the following

organizations:

National Weather Service reports the weather of

the United States and provides weather forecasts and

warnings to the general public.

National Ocean Service issues nautical charts;

performs geodetic surveys; conducts research; and

develops policies on ocean mining and energy.

National Marine Fisheries Service conducts a program

of management, research, and services related to the

protection and rational use of living marine resources.

National Environmental Satellite, Data, and

Information Service observes the environment by

operating a national satellite system.

Office of Oceanic and Atmospheric Research

conducts research related to the oceans and inland

waters, the lower and upper atmosphere, space

environment, and the Earth.

Office of Marine and Aviation

Operations operates NOAA’s ships and

aircraft and provides NOAA programs with trained technical and

management personnel from

the nation’s seventh uniformed service.
September 2002/Semiannual Report to Congress 31

National Oceanic and Atmospheric Administration

to the NOAA travel card program coordinator and following up

to ensure the accounts are closed; discontinue the practice of

using travel cards to pay for business expenses not specifically

related to travel; and send annual reminders to cardholders

regarding what constitutes appropriate travel-related charges

(e.g., transportation services, lodging). (BUSINESS AND TRADE

AUDITS DIVISION: BTD-14908)

WEAK MANAGEMENT

CONTROLS HAMPER NOAA’S

EFFORT TO UPGRADE ITS

FLEET OF RESEARCH

VESSELS

NOAA’s National Marine Fisheries Service (NMFS) relies heavily on at-sea research to fulfill its mission of protecting the

nation’s living marine resources, and uses a fleet of nine fisheries

research vessels (FRVs) to conduct a variety of science-based

ocean activities. Eight of these ships were constructed during the

1950s and 1960s, and all are fast approaching the end of their

service lives.

NOAA is in the process of upgrading this fleet with up to four

new state-of-the-art research vessels, to be built under its highpriority FRV-40 acquisition program. These ships will enable

NMFS to stay at sea for as long as 40 days and to conduct a wider

range of scientific studies. 

In September 1998 NOAA formed a project team consisting of

representatives from several of its components to procure the

vessels and manage the acquisition. Congress appropriated $59.7

million in FYs 2000 and 2001 for design and construction of the

first FRV and for management of the acquisition effort. NOAA

planned to use another $5.4 million in FY 2002 for managing

acquisition of subsequent vessels. If all four ships are constructed, costs could exceed $200 million.

In January 2001 NOAA awarded a contract to design and build

the first vessel, but there have been problems since the outset.

The contractor had difficulty meeting the bonding requirement,

which delayed initiation of the work. Subsequently, the firm’s

parent company and its affiliates (including the contractor) filed

for reorganization protection under the U.S. bankruptcy code.

Although the company’s future is uncertain, the firm has continued the contract work. 

We conducted an audit of the FRV contract to (1) determine

whether construction of the vessel was meeting the program’s

performance goals for cost and timeliness; (2) evaluate corrective

action NOAA has taken or will take for any deviations from

goals; and (3) assess the effectiveness of NOAA’s management

controls over the acquisition program. We identified a number of

weaknesses in those controls, some of which rendered NOAA

unable to provide the documentation we needed to achieve our

first two objectives. We therefore recommended that NOAA take

the following actions to improve management controls and thus

ensure that the contract work proceeds efficiently for the first and

all subsequent vessels:

■ Comply with federal requirements for contract files.

The FRV project team has not established an official

contract file that contains all essential documents relating

to the FRV acquisition, as required by the Federal

Acquisition Regulation (FAR). Without this file,

NOAA cannot effectively document procurement

actions and decisions.

■ Enforce the contract’s scheduling requirements. The

contractor has not provided NOAA with updated

schedules, as required by both the contract and FAR, so

neither party can systematically and objectively track the

progress and timeliness of the contract work.

■ Strengthen procedure for tracking FRV program

costs. The reporting procedure established by the project

team does not generate critical cost accounting and costgoal information that the acquisition/program manager

needs to monitor whether the FRV project is staying

within cost goals. NOAA should amend this procedure

for periodic financial reporting to include all essential

information needed to direct the program. 

■ Immediately implement a detailed award fee plan. At

the time of our audit, NOAA had yet to implement an

effective award fee plan to encourage superior

NOAA reports that this state-of-the-art ship will be its first acoustically

quiet fisheries research vessel capable of conducting a variety of scientific missions including fisheries stock assessments, physical and

biological oceanography, marine mammal research, and atmospheric

and sea surface research. It will provide the best available data to

rebuild and sustain our fisheries and to meet the global challenge of

maintaining sustainable ecosystems and protecting the integrity of longterm research analyses. 

Source:

http://www.nmfs.noaa.gov/BudgetFactSheets/YOTO_FISHSHIPS.pdf
32

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General

performance by the contractor. The current plan lacks

definition; clear, results-oriented evaluation criteria;

examples of significant events that constitute superior

performance; and detailed guidance for evaluators. Each

day that passes without an acceptable plan in place

compromises the contractor’s ability to excel and

increases the risk that goals for cost, performance, and

product delivery will not be met.

■ Institute a clear, well-documented program

management structure. The current organizational

structure of the project team does not clearly delineate

and document specific authorities and responsibilities for

individual team members, nor does it specify lines of

communication and reporting relationships. This lack of

specificity compromises the team’s efforts to administer

the contract effectively and increases the possibility of

missed project milestones, friction among team members,

and high turnover among project staff.

Two other weaknesses emerged during our audit that also require

action. First, we found that NOAA did not conduct a preaward

survey for the FRV contract. A preaward survey is an assessment

of a potential contractor’s ability to fulfill contract requirements.

By failing to take this step, NOAA missed some key indicators of

the contractor’s uncertain financial status. NOAA should conduct

preaward surveys for any future FRV contracts to be certain of

choosing a financially sound contractor. 

Second, we found that NOAA has no written contingency plan to

ensure the uninterrupted flow of scientific data, should delivery

of the research vessels be significantly delayed or the contract

terminated. It must develop such a plan to ensure NMFS’ ability

to fulfill its stewardship role for the marine environment. 

AGENCY RESPONSE

NOAA concurred with all but one of our recommendations-that a

detailed award fee plan be developed and implemented immediately. While the agency agreed that such a plan was needed and

has begun developing one, it believes implementation should be

delayed until the contractor’s bankruptcy status is resolved. We

contend, however, that the plan is needed now because contract

work continues despite the bankruptcy filing. (SCIENCE AND

TECHNOLOGY DIVISION: STD-14428)

STRONGER MANAGEMENT

RESEARCH PROCESSES AT

NORTHWEST FISHERIES

SCIENCE CENTER WOULD

ENHANCE SALMON

RECOVERY EFFORTS

The National Marine Fisheries Service (NMFS) is responsible for

preventing the extinction and protecting the habitats of marine

fish, mammals, sea turtles, and anadromous fish (salmon and

other species that migrate between the ocean and inland waterways). In the Pacific Northwest, NMFS’s endangered species

activities are handled primarily by its Northwest Regional Office

and Northwest Fisheries Science Center.

The regional office identifies and lists species that are endangered or threatened in its area of coverage, which encompasses

much of the Columbia River Basin and large stretches of the

Pacific Ocean. It creates management policies and plans to protect the listed species and their habitat, and works with groups

whose proposed projects could harm the listed species to mitigate

the harm. The science center, in turn, supports the region by

assessing the status of all species and conducting scientific

research to determine how best to protect and recover them and

their habitats. The center has a large groundfish program and conducts research on a variety of other marine species, but much of

its activities focus on Pacific salmon.

In 2000 the NMFS regional office issued a biological opinion on

ways to mitigate the impacts of federally operated dams, powerColumbia River Basin. houses, and associated reservoirs on salmon migration up and
September 2002/Semiannual Report to Congress 33

National Oceanic and Atmospheric Administration

down the Columbia and Snake Rivers. Despite the center’s years

of salmon research, it discovered that it lacked basic scientific

information—such as population estimates and the impact of various risk factors on population growth—needed to provide

pertinent direction for actions affecting salmon. In response, it

developed the Salmon Research Plan. Built on a framework of 10

broad questions (and numerous, specific subquestions), the plan

sets an ambitious, interdisciplinary agenda for salmon

recovery designed to ensure that center projects directly further

recovery efforts.

We conducted a performance audit to assess management controls used to implement the plan, specifically focusing on (1)

procedures for obtaining peer review, (2) strategies and processes for implementing the plan, and (3) methods for ensuring that

ongoing work answers the 10 research questions. To determine

appropriate controls for a science research program, we reviewed

relevant guidance from OMB, the National Academy of Science

and its National Research Council, the U.S. General Accounting

Office, and other organizations. 

We concluded that the Salmon Research Plan is an important step

toward meeting the center’s goal of strengthening its salmon

research program. The plan establishes research priorities and

supports NMFS’s strategic goal of recovering and maintaining

endangered species. In developing the plan, the center followed

best practices for building solid research programs and incorporated elements that satisfy some of OMB’s subsequently issued

criteria for supporting the President’s FY 2004 science agenda.

The OMB criteria direct managers to create well-conceived plans

that, for every program, (1) identify goals, priorities, and links to

national and “customer” needs; (2) justify how funds will be allocated to ensure quality; and (3) implement appropriate outcome

measures and milestones for tracking progress toward goals and

assessing whether funding should be increased or redirected. The

Salmon Research Plan already demonstrates progress toward

meeting these criteria. With some additional work, it can more

clearly reflect them. 

Our other findings and recommendations are as follows:

Peer review. Despite the many positives of the research plan, its

true value for improving the quality of the center’s salmon-related work has not been rigorously evaluated via a documented

peer review process. Although the center conducts peer review

of some products, it does not have a documented peer review

policy or a well-defined process for performing such reviews of

its research plans. NMFS needs to issue guidance that clearly

delineates the requirements for documented peer review

processes. The science center should then document its existing

process, add a step for obtaining formal comment on research

plans, and use this revised process to formally peer review the

Salmon Research Plan.

Multiyear plans. A multiyear plan is a management control that

takes broad objectives, such as those posed by the 10 questions in

the Salmon Research Plan, and details a blueprint for measuring

progress toward achieving them from one year to the next. 

Multiyear plans (1) provide a framework for integrating research

programs across functional and organizational boundaries; (2)

establish a mechanism for evaluating ongoing research, identifying

data gaps, and involving stakeholders; (3) allow transparency for

programs by providing interim performance measures that link to

longer term strategic goals; (4) enhance efforts to obtain needed

resources; and (5) provide methods to better anticipate, evaluate,

and complete research activities within realistic time frames.

At the time of our review, the center had developed multiyear

plans for only 3 of the 10 research questions, and had given

regional managers only limited involvement in decisions related

to the Salmon Research Plan. We advised the science center to

develop appropriate multiyear plans, work with regional staff to

identify potential funding for projects in these plans, and subject

the plans to appropriate peer review. We also noted that management at the center and the regional office need to establish a

reliable method for involving the region and other stakeholders in

developing the multiyear plans.

Processes for managing ongoing work. We found that the center lacked adequate controls for (1) documenting how ongoing

research is answering the questions in the plan; (2) ensuring that

its annual planning and project approval process documents the

specific ways in which proposed work will support the plan; and

(3) tracking actual time spent on projects—data needed to make

informed decisions about costs and funding levels. The science

center should assess and document the extent to which existing

projects support finding answers to the salmon questions, clearly

link the Salmon Research Plan to its annual planning and project

approval process, and implement a system to track full program

costs. In addition, we believe the center should make the research

questions a standard component of its program review criteria.

Program reviews are a form of peer review in which experts from

within and outside an agency evaluate the relevance of research

to agency goals. Including the 10 questions in the review criteria

would further document a program’s value in relation to the

Salmon Research Plan. 

NOAA agreed with our recommendations and added that all of its

NMFS science centers could benefit from taking similar actions.

(SCIENCE AND TECHNOLOGY AUDITS DIVISION: STD14440)
34

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General

FISCAL MISMANAGEMENT

FOUND IN AUDIT OF NOAA

COOPERATIVE AGREEMENT

A nonprofit fisheries research organization received a 3-year

cooperative agreement from NOAA in April 1998. The

$3,207,915 award was to be used for research on protecting and

enhancing salmon species in the Pacific Northwest. The agreement specified 31 tasks that the recipient was to complete. 

Our audit, conducted in April 2002, sought to determine whether

the organization had (1) accomplished the award objectives, (2)

complied with federal regulations and award terms and conditions, and (3) claimed costs that were reasonable, allowable, and

allocable.

Our review disclosed that the recipient failed to perform 8 of the

31 tasks required by the agreement and could not properly document the completion of work for the remaining 23. We also found

that the organization had violated federal financial management

regulations by inadequately managing the costs of the tasks.

Specifically, it redirected the funds allocated for the 8 tasks it did

not perform to other tasks; its financial reporting system did not

compare actual expenditures against budgeted amounts for each

task order, did not account for the 8 tasks that were not performed, and did not record the overexpenditures that occurred for

15 tasks; and the recipient’s expenses exceeded the project budget by $11,674. The noncompliance with regulations and terms of

the agreement and the inadequate administration of the award

caused us to question $428,695 in claimed costs.

Cost Category Amount Questioned

Personnel $322,674

Fringe benefits 50,104

Indirect costs 55,917

Total $428,695

Because this was a cooperative agreement, NOAA personnel had

substantial involvement in directing or redirecting the tasks to be

performed, and apparently made significant modifications to the

original work specified in the award. In light of this circumstance, we recommended that NOAA either amend the award to

accurately reflect the actual tasks it directed the recipient to perform or disallow the total amount of questioned costs ($428,695)

and recover $417,021 for the improper claims. 

This research organization continues to perform work for NOAA

under a different cooperative agreement. We therefore recommended that for this second award, NOAA ensure the recipient

performs all required tasks and carefully monitors incurred costs.

(SEATTLE REGIONAL OFFICE: STL-14956)

ACCOMPLISHMENTS AND

CROSSCUTTING ISSUES

IDENTIFIED AT 14 WEATHER

FORECAST OFFICES

The National Weather Service (NWS) operates 121 weather forecast offices (WFOs) nationwide, each of which provides

continuous reports on weather conditions affecting its assigned

county warning area. In FY 2000 OIG began inspecting these

offices to determine how effectively they (1) deliver warnings,

forecasts, and other information to their service users; (2) coordinate their activities with state and local emergency managers; and

(3) supervise their network of volunteer observers and spotters.

We also assessed each office’s management and internal controls;

its compliance with Department, NOAA, and NWS policies and

procedures; and the effectiveness of NWS’s regional oversight. 

During previous reporting periods we completed comprehensive

evaluations of four WFOs—Raleigh, North Carolina; San

Angelo, Texas; Missoula, Montana; and Chanhassen,

Minnesota—and found issues common to all. Specifically, we

determined that the four generally provided effective weather

services but needed to improve administration and management

oversight. They also needed more attention from regional managers, who should conduct regular reviews of WFO management,

program, technical, and administrative operations. (For more

Artificial streambed located at NMFS field station.
September 2002/Semiannual Report to Congress 35

National Oceanic and Atmospheric Administration

details about the Raleigh, Missoula, and San Angelo reviews, see

the September 2001 issue, pages 43-49; for Chanhassen, see the

March 2002 issue, page 57.)

During this semiannual period we conducted limited reviews of 10

additional offices—choosing WFOs from all six regions (see

below)—to ascertain whether the strengths and weaknesses identified during our four comprehensive reviews existed elsewhere. We

also followed up with the first 4 offices to document any improvements they had made since our initial inspections. At all 14

locations, we focused on the seven major areas of office operations

defined by NWS: forecasting, outreach, the Skywarn and

Cooperative Observer programs, staff training, information technology, office management/administration, and regional oversight. 

Map shows WFOs where OIG performed complete inspections (◆) or limited inspections (●).

Additional WFOs Reviewed

Eastern Region Central Region Southern Region

Mt. Holly, New Jersey Denver/Boulder, Colorado Miami, Florida

Sterling, Virginia St. Louis, Missouri Norman, Oklahoma

Western Region Alaska Region Pacific Region

San Francisco, California Anchorage, Alaska Honolulu, Hawaii

Seattle, Washington
36

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General

SUMMARY OF FINDINGS 

Overall, we found that the WFOs did a good job of providing reliable and timely forecasts and other weather products (such as

warnings and advisories). We noted a number of operational

strengths at the 10 offices and improvements at our original 4

inspection sites that we attribute to several circumstances: NWS’s

dissemination of our four comprehensive reports to all WFOs, its

instruction to office managers to improve operations and procedures as necessary, and its formulation of a team of WFO

meteorologists-in-charge to recommend techniques for improving

operations. Among our specific findings are the following:

■ NWS’s forecast performance statistics for FY 2001

showed that 10 of the 14 offices had a good or

satisfactory track record of accurately and expeditiously

predicting weather events. The success rates for the

remaining 4, however, were below regional averages.

The regional offices and WFOs in question need to

determine whether these statistics are an anomaly or a

trend that needs correction. 

■ The offices conducted effective outreach activities to

keep the community informed of weather events and to

raise awareness of meteorology and weather safety.

■ The WFOs we reviewed operate efficient and successful

Skywarn and Cooperative Observer programs, with the

exception of the Anchorage office, which faces

formidable challenges because of the size and remoteness

of its warning area and harsh winters.

■ The offices generally provided good staff training.

However, 7 offices did not have individual development

plans in place for all employees (although they were

slated to complete such plans by the end of FY 2002),

and only 6 have active research agendas, even though

NWS encourages the offices to conduct operational or

applied research.

■ Each of the 14 offices has security documentation in

place for its information technology operations and onsite personnel to oversee IT security. They also

implement IT controls and procedures, such as

periodically revising passwords, updating software

inventory, and testing office backup and contingency

procedures. 

At the same time, we found two administrative and management

deficiencies that require attention:

■ Most offices had weak internal controls over staff use of

purchase cards, convenience checks, and vehicles, and

maintained inadequate inventory records of accountable

property. These deficiencies leave the WFOs vulnerable

to waste and theft of government resources. We noted

efforts to improve administrative operations at several

offices as a result of NWS’s nationwide dissemination of

our February 2000 report, which identified these

problems at the Raleigh WFO.

■ NWS regional offices did not provide adequate oversight

of WFO management, program, technical, and

administrative operations.

SUMMARY OF

RECOMMENDATIONS

We made a number of recommendations to the assistant administrator for NWS to address the crosscutting issues we identified in

our review of the 14 offices. Among these recommendations

were the following: NWS regional directors should be instructed

to (1) emphasize quality control of forecasts and forecast products to the WFOs and work with them to determine whether any

of their state or local forecasts should be discontinued; (2) ensure

that the Cooperative Observer Program remains fully staffed by

trained employees, despite turnover; (3) ensure that the WFOs

implement an office training plan, have individual development

plans for all staff, and have appropriate training resources for the

Weather Event Simulator and the Interactive Forecast

Preparation System; (4) ask the offices to encourage their staff to

conduct applied research and disseminate the research results via

their Internet web pages; and (5) ensure that WFO managers and

staff are properly trained to comply with regulations and guidelines for using purchase cards, convenience checks, and

government vehicles, and for managing accountable property. 

In addition we recommended that the various regional headquarters develop schedules to regularly visit and conduct

comprehensive reviews of each WFO under their supervision,

with particular focus on the office’s programs, management,

technical, and administrative functions, and IT security.

We also made a number of recommendations to address new or

continuing problems identified at individual WFOs during this

inspection. (OFFICE OF INSPECTIONS AND PROGRAM

EVALUATIONS: IPE-14577)

INVESTIGATIVE

HIGHLIGHTS 

FORMER NOAA ADMINISTRATIVE

OFFICER SENTENCED TO PRISON

FOR EMBEZZLEMENT

In the September 2001 issue (pages 78-79), we reported the conviction of a former NOAA administrative officer on one felony
September 2002/Semiannual Report to Congress 37

National Oceanic and Atmospheric Administration

count of violating 18 U.S.C. §641, based on his embezzlement of

more than $33,000 from the government over a period of nearly

2 years. On May 14, 2002, the defendant was sentenced in U.S.

district court for the Western District of Missouri to 5 months’

imprisonment, 5 months’ home detention, and 3 years’ probation.

Under the terms of his earlier plea agreement, the defendant is

also required to make full restitution to the government. (DENVER FIELD OFFICE OF INVESTIGATIONS)

NEW HAMPSHIRE FISHERMAN

INDICTED FOR GRANT FRAUD

On April 25, 2002, a four-count indictment was issued in the U.S.

district court for the District of New Hampshire, charging a fisherman with false statements, fraud, and embezzlement in

connection with a $192,000 NOAA fishing industry grant awarded to a nonprofit organization to study the harvest and

commercial development of green sea urchins. The indictment

charged the defendant with claiming more than $109,000 in

salary and vessel time as project expenses, although he failed to

perform the work set out in the grant agreement. In addition, he

is charged with theft of approximately $16,000 from the government by retaining the proceeds of sea urchin sales generated by

the project. The false statement and wire fraud charges against

the defendant each carry a maximum penalty of 5 years in prison,

and the two theft counts could result in a sentence of up to 10

years’ incarceration. Trial is scheduled for November 2002.

(WASHINGTON FIELD OFFICE OF INVESTIGATIONS)

DEFENDANT ARRESTED IN

FLORIDA ON WIRE FRAUD

CHARGES

In the last issue (page 92), we reported the indictment of a

former financial accounting technician at NOAA’s Mountain

Administrative Support Center, who had manipulated the

Commerce Administrative Management System to make about

$19,000 in payments to her personal credit card with government

funds. On June 19, 2002, the defendant was arrested by an OIG

agent and a federal marshal near Tampa, Florida, and released on

$25,000 bail after being arraigned on six counts of wire fraud. No

date has been set for trial. (DENVER FIELD OFFICE OF

INVESTIGATIONS)

FORMER NWS EMPLOYEE

SENTENCED FOR MISUSE OF

GOVERNMENT PURCHASE CARD

On April 5, 2002, a former employee of an NWS regional office

in Alaska was sentenced in U.S. district court for the District of

Alaska to 5 years’ probation, based on her theft conviction for

using a government purchase card to charge nearly $7,500 in

goods and services for her own use. (See March 2002 issue,

page 91.) Under the terms of a plea agreement, the defendant

is also required to make restitution of the full amount of the

government’s loss. (DENVER FIELD OFFICE OF INVESTIGATIONS)

GIFT ACCEPTANCE RESULTS IN

NWS EMPLOYEE’S DEMOTION

In lieu of a proposed 14-day suspension, an NWS meteorologist

agreed to a reassignment of duties and a voluntary reduction in

grade for accepting gifts from an outside source in violation of

the standards of ethical conduct for employees. An OIG investigation disclosed that the employee had received free tickets and

parking passes from a minor league baseball team in appreciation

for weather forecasts provided to the team by his office. (DENVER FIELD OFFICE OF INVESTIGATIONS)
38 U.S. Department of Commerce/Office of Inspector General

Advances in telecommunications continue to change the nation’s economic and social fabric in ways that

profoundly affect every American and the world at large: our marketplace, public services and protections, systems of education, and methods of information exchange are but a few of the fundamental

aspects of society that rely on telecommunications technology. 

NTIA’s exclusive focus on telecommunications and information technology is unique

among federal agencies, and puts it at the forefront of America’s evolving communications

infrastructure. In the new digital era, NTIA is using its expertise and resources to forge

industry innovation and competition, as well as consumer empowerment; facilitate the

availability of wireless services; and expedite the digital conversion of the public

broadcast system. 

NTIA’s two telecommunications investment programs—the Technology Opportunities

Program (TOP) and the Public Telecommunications Facilities Program (PTFP)—provide grants to state, local, and tribal governments, and nonprofit entities to help finance

a range of telecommunications projects in underserved communities. TOP grants support model projects that demonstrate innovative uses of digital network technologies.

PTFP grants support construction and replacement of public radio and television facilities, and expansion of broadcast signals. Since 1994 the two programs have awarded

grants totaling approximately $430 million.

INVESTIGATIVE 

HIGHLIGHTS 

EMPLOYEE SUSPENDED FOR FALSE TRAVEL

REIMBURSEMENT CLAIMS

Based in part on the findings of an OIG investigation, an NTIA employee received a 14-day suspension for filing multiple claims for

reimbursement of local taxi fare charges that she had not actually incurred. (SILVER SPRING FIELD OFFICE OF INVESTIGATIONS)

NATIONAL

TELECOMMUNICATIONS

AND INFORMATION

ADMINISTRATION

The

mission of

the National

Telecommunications and

Information Administration

is to (1) serve through the

Secretary of Commerce as the

principal executive branch advisor

to the President on domestic and

international communications and

information policies, (2) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(3)develop with other federal

agencies policies for international

communications and standard-setting

organizations, (4) serve as the

federal telecommunications research

and engineering center, and

(5) administer grants under

the Telecommunications and

Information Infrastructure

Assistance Program

and the Public

Telecommunications

Facilities

Program.
September 2002/Semiannual Report to Congress 39

INCREASING RELIANCE ON COMPUTING

TECHNOLOGIES INCREASES

VULNERABILITIES FOR NIST DATA 

Automated teller machines, atomic clocks, mammograms, and semiconductors

are among the innumerable products and services that rely in some way on

the work of NIST. NIST’s mission is to develop and promote measurements, standards, and technology to enhance productivity, facilitate trade,

and improve the quality of life. Most of NIST’s work is done at two

locations—Gaithersburg, Maryland, and Boulder, Colorado. The

agency has a staff of more than 3,000 full-time scientists, engineers,

technicians, and support personnel, plus 1,600 visiting researchers

and 2,000 collaborators at affiliated centers around the country

and overseas. 

An ever-increasing amount of NIST’s work depends on computer models, computer data, and other electronic information. With

NIST’s increasing reliance on computing technologies, including the use of the Internet and its related information

dissemination techniques, the potential for loss, compromise,

and misuse of NIST data and facilities has grown tremendously.

ADDITIONAL IMPROVEMENTS

WOULD STRENGTHEN NIST’S

INFORMATION SECURITY

PROGRAM

As part of our review of Department-wide information security measures

(see page 53), we evaluated NIST’s security policies and procedures to

determine their compliance with the Government Information Security

Reform Act using NIST’s Security Self-Assessment Guide for Information

Technology Systems.

8 We found that NIST is taking steps to improve information

security; for example, it has increased its computer security staff, developed issue-specific policies, procedures, and guidance for handling a number of security concerns;

posted to its intranet a system security plan template, guidance, and list of frequently asked

questions to aid in security plan development; established a security awareness and training program; and implemented a computer security incident reporting and handling process. However, the

TECHNOLOGY

ADMINISTRATION

8 NIST, November 2001. Security Self-Assessment Guide for Information Technology Systems, NIST Special Publication (SP) 800-26. Gaithersburg, MD: National

Institute of Standards and Technology. 

The

Technology

Administration serves

the needs of technology-based

industry, advocates federal actions and

policies to speed the transfer of technology

from the laboratory to the marketplace, and

removes barriers for commercializing new technologies. It includes three major organizations:

Office of Technology Policy works to raise

national awareness of the competitive challenge,

promotes industry/government/ university partnerships, fosters quick commercialization of federal

research results, promotes dedication to quality,

increases industry’s access to and participation in foreign research and development, and encourages the

adoption of global standards.

National Institute of Standards and Technology promotes U.S. economic growth by working with industry

to develop and apply technology, measurements, and

standards. NIST manages four programs: the Advanced

Technology Program, the Manufacturing Extension

Partnership program, a laboratory-based measurement

and standards program, and the National Quality

Program.

National Technical Information Service is a selfsupporting agency that promotes the nation’s

economic growth and job creation by providing

access to information that stimulates innovation and discovery. NTIS accomplishes this

mission through two major programs:

information collection and dissemination to the public, and information

and production services to federal agencies.
40

Technology Administration

U.S. Department of Commerce/Office of Inspector General

bureau has yet to meet a number of key GISRA and other federal requirements, and we made recommendations to resolve these

deficiencies. 

NIST’s Information Security Policy and

Procedures Need to Be Strengthened

The policy does not address critical roles and responsibilities and

essential management control elements, such as risk management, review of security controls, and certification and

accreditation.9 It assigns responsibility for system accreditation

to the CIO, but not to the senior official whose mission the system supports.

We recommended that the director of NIST take the necessary

steps to ensure the development and implementation of a comprehensive policy by instructing NIST managers to explicitly

identify and document all information security roles and responsibilities, including those of the director and CIO; by extending

accreditation authority to all senior officials whose mission could

be adversely affected by information security weaknesses; and

reviewing and revising, as appropriate, NIST’s Recommended

Computer Security Procedures for incorporation into the security

program policy. 

Deadlines for Risk Assessments, Security

Plans, and Accreditations Are Unrealistic

At the time of our evaluation, none of NIST’s 109 operational

systems had a documented risk assessment or an approved security plan. Additionally, all but 2 systems lacked accreditation.

The bureau had established a schedule for completing risk

assessments, security plans, and accreditations, but we believe

its time frame was too ambitious to permit sufficient analysis,

documentation, and review. 

NIST indicated that it had extended its deadline for accreditation

by 30 days. However, given the complexity and importance of

the activities required to accomplish accreditation, including

testing of security controls to ensure that they perform as intended, we remain concerned that even with the schedule extension,

there is not enough time to adequately complete all of the requisite activities and documentation. We believe that the

accreditations should be considered provisional until there is

confirmation that each system has all needed security controls

and that these controls have been tested to ensure they perform

as intended. 

NIST’s Inventory of Sensitive IT Systems

Was Incomplete

We identified three operational systems from the Advanced

Technology Program that were not included in the inventory,

which suggests that systems in other NIST components may also

be omitted. NIST publication SP 800-18, Guide for Developing

Security Plans for Information Technology Systems, contains

guidance for identifying systems subject to security controls. We

recommended that the bureau make this information readily

available to all of its components and see that it is properly followed. NIST noted that additional guidance was provided on

system boundaries to system owners, who used it to reassess the

system inventory. 

User Accounts for Off-Site Researchers

Are Not Always Promptly Closed When

Access Is No Longer Required

NIST needs to tighten this control: bureau managers should verify that systems administrators and information security officers

are immediately notified when external researchers no longer

need access to NIST’s computing resources. NIST stated that in

FY 2001, it began developing a system for tracking guest

researchers who have a NIST badge and that the system will be

expanded to track all guest researchers and external collaborators.

Risk Designations for Some Positions Are

Inconsistent with Their Levels of

Responsibility and Trust

Designations of risk reflect the potential damage an individual in

a position of public trust could cause to the efficiency and integrity of government programs. We found that some positions in the

Advanced Technology Program and the Mechanical Engineering

and Physics laboratories—such as systems administrators and

information security officers—had low risk designations, even

though the work of such staff directly affects government operations. As a result, employees in these positions had not received

appropriate background checks. NIST responded that its managers have been instructed to work with the Department’s Office

of Human Resources and Office of Security to verify that all current positions are properly designated according to risk and

appropriate background investigations conducted for staff who

have information system or security responsibilities.

NIST Does Not Have an IT Capital Asset

Planning Process

The 1996 Clinger-Cohen Act requires agencies to establish a capital planning and investment control process for all IT capital

9 Certification is the formal testing of the security safeguards implemented in a

computer system to determine whether they meet applicable requirements and

specifications. Accreditation is the formal authorization by management for system operation, including an explicit acceptance of risk.
September 2002/Semiannual Report to Congress 41

Technology Administration

assets to help ensure that appropriate projects are funded and well

managed and to integrate IT planning, budgeting, acquisition,

and management. GISRA and OMB require agencies to identify

and budget for security measures and resources needed to protect

their IT investments throughout the investment’s life cycle.

Despite these and other federal directives, NIST has yet to

implement an agencywide IT capital planning and control

process, and thus cannot ensure that IT projects are appropriately selected, planned, and managed; that information security is a

factor in each system’s design and a management consideration

throughout its life cycle; or that information security cost estimates are valid. The bureau should set and meet a deadline for

finalizing and implementing an IT capital planning and investment control process that integrates information security with the

budget process. According to NIST, a capital investment planning process was begun in FY 2002 and will be fully

implemented in FY 2003. 

NIST Needs a Permanent Chief

Information Officer

To support GISRA requirements for executive oversight of information security improvements, in June 2001 the Secretary of

Commerce directed all operating units to appoint a CIO who

would report to the unit’s head or principal deputy, as well as to

the Department’s CIO. The Secretary further directed secretarial

officers and heads of operating units to give information security

high priority and sufficient resources and to work closely with

their CIOs to implement effective security measures.

At the time of our review, NIST had not appointed a CIO.

Instead, its CIO office resided in its Information Technology

Laboratory (ITL) and reported to ITL’s acting director, who also

served as the acting CIO. NIST needs to define and implement a

new CIO organizational structure, appoint a CIO as soon as possible, and ensure that this official has responsibility for and

authority to develop and maintain an agencywide information

security program. NIST should also take other appropriate

actions to ensure that information security receives high priority

in accordance with the Secretary’s direction and that senior management officials at the bureau understand and implement their

information security responsibilities.

AGENCY ACTIONS ON OUR

RECOMMENDATIONS

NIST has accepted and is implementing our recommendations.

Since the conclusion of our fieldwork, the director of NIST

issued several memorandums acknowledging his responsibility

for the security of NIST’s data and IT systems and directing

upper management to give information security high priority. He

also directed upper management to ensure the agency’s policies,

procedures, and operational environment are exemplary. NIST’s

CIO will co-accredit all systems after a review by the information

security officer. Finally, a proposal for a new CIO organization

was submitted to the Department for approval. (OFFICE OF

SYSTEMS EVALUATION: OSE-15078)

ADVANCED TECHNOLOGY

PROGRAM 

Since 1990 the Advanced Technology Program (ATP) has

invested nearly $1.9 billion in private sector research and development to accelerate the time-to-market for innovative

technologies that promise significant benefits to the nation as a

whole. ATP develops partnerships with individual firms (single

applicants) or consortiums of businesses (joint ventures) as well

as with universities and nonprofit organizations, entering into

cooperative agreements to share the cost of high-risk research

and development. 

From 1990 through June 2002, NIST awarded 414 ATP agreements to single applicants and 188 agreements to joint ventures.

Small businesses constituted 75 percent of the single applicants

and were the lead firm in 36 percent of the joint ventures.

Joint ventures have accounted for approximately 60 percent of

total ATP funding and averaged $6 million per agreement, while

awards to single applicants averaged $1.8 million. Private industry has matched ATP’s investment with $1.8 billion over the

program’s 12-year history. ATP’s cost-sharing requirements are

strict: joint ventures must pay at least half of the project costs.

Large Fortune 500 firms participating as single applicants must

pay 60 percent. Small and midsize firms may be reimbursed for

up to 100 percent of direct costs, but must pay all indirect costs. 

During this semiannual period we audited costs claimed under

five ATP awards—three joint ventures and two individual awards.

AUDIT OF PENNSYLVANIA JOINT

VENTURE ADMINISTRATOR

QUESTIONS $3.3 MILLION IN

CLAIMED COSTS

In September 1995 NIST awarded $21.3 million in ATP funds to

a nonprofit corporation located in western Pennsylvania as the

designated joint venture administrator of a consortium of businesses developing a national health care “knowledge bank”—a

searchable multimedia database of expert medical information

that doctors can browse and retrieve. Estimated costs for the 5-

year project were $51.3 million, of which joint venture members
were required to contribute $30 million. ATP funding concluded

in September 2000. Over the course of the 5 years, the administrator claimed $8.6 million in direct costs and $3.1 million in

indirect costs. 

We sought to determine whether the administrator’s claims for

reimbursement of direct project costs were accurate and whether

it had complied with applicable legal and administrative requirements. Our audit disclosed that the administrator claimed

$3,255,490 in unsupported or otherwise unallowable costs in the

following categories: 

Questioned Costs Amount

Salaries and fringe benefits $ 354,475

Equipment 669,989

Consulting 1,130,700

Network contracts 1,100,326

Total $3,255,490

We recommended that NIST disallow the full amount questioned

and recover $1,466,754 in excess federal disbursements. A separate audit of the project’s indirect costs is currently under way.

(ATLANTA REGIONAL OFFICE OF AUDITS: ATL-13993)

OIG RECOMMENDS

DISALLOWANCE OF COSTS AND

RECOVERY OF FUNDS FROM NEW

JERSEY JOINT VENTURE 

In September 1998 NIST awarded an ATP cooperative agreement

to partially fund a joint venture for development of propanefueled power systems to support telecommunications

applications. The 2-year project had total estimated costs of

$6,376,772, with the federal share capped at $3,159,324, or 49.54

percent of allowable costs.

For the 2-year award period ending December 31, 2000, the two

participants in the joint venture claimed total costs of $5,915,528.

NIST reimbursed $2,929,018, which left $230,306 in undisbursed award funds. The administrator subsequently submitted

additional claims that extended beyond the approved award period, which NIST has not reimbursed.

We audited the total claimed costs by the two businesses in the

joint venture. We confirmed that the accounting systems used

to administer the award were generally adequate and that the

joint venture members were materially in compliance with

award terms and conditions. However, we questioned

$367,014 of the total costs for which the two businesses

received reimbursement—$350,142 in indirect costs that

exceed the budgeted amount and negotiated rate, and $16,872

in labor and consulting costs incorrectly charged to the NIST

project. We also determined that claims submitted for costs

incurred beyond the approved project period were ineligible

for NIST reimbursement.

We recommended that NIST disallow the questioned costs,

recover disbursed federal funds of $180,284, immediately close

out the award, and deobligate the remaining award funds so that

they can be put to better use. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-14978) 

MINOR INFRACTIONS FOUND

DURING AUDIT OF TEXAS JOINT

VENTURE PARTICIPANTS

A joint venture is conducting a $5.8 million broadband communications project under a 30-month ATP cooperative agreement.

Federal funding for the project is limited to $2,395,768, and the

award period is November 2000 through April 2003. 

We conducted an interim audit of $1,957,530 in costs claimed by

all the participants in the joint venture administrator from the

project’s inception through March 2002. We also assessed the

administrator’s accounting and financial systems and compliance

with ATP terms and conditions. 

We found that the administrator billed NIST twice for sales tax

($15,722) on an equipment purchase and improperly charged

$7,075 for related general and administrative costs. We questioned this total amount ($22,797). The administrator agreed with

our finding and deducted the amount from its March 2002

request for NIST reimbursement. We found no other deficiencies

with the administrator’s accounting system and no instances of

noncompliance with applicable laws and regulations. (DENVER

REGIONAL OFFICE OF AUDITS: DEN-14517)

CONFLICT OF INTEREST

RESULTS IN QUESTIONING OF

COSTS CLAIMED BY

CALIFORNIA RECIPIENT

In September 1998 NIST awarded an ATP cooperative agreement

to a single applicant for a 3-year research project that had total

estimated costs of $2,279,524. Federal funding for the project

was capped at $2 million. 

42

Technology Administration

U.S. Department of Commerce/Office of Inspector General
September 2002/Semiannual Report to Congress 43

Technology Administration

Our audit sought to (1) determine whether the recipient’s

accounting and financial management systems complied with

federal regulations and NIST/ATP requirements, (2) verify final

incurred costs, and (3) identify any instances of noncompliance

with award terms or conditions.

We noted a conflict of interest in the recipient’s awarding of two

subcontracts and one consultant agreement: both the subcontractor and the consultant were members of the recipient’s board of

directors and thus had the ability to influence their selection as

service providers and the administration of the resulting contracts and agreements. Additional questioned costs totaling

$9,652 were comprised of (1) $6,962 in postaward costs, (2)

$2,286 in commercialization costs, and (3) $404 in fines. As a

result, we questioned $540,913 in subcontractor and consultant

costs. (DENVER REGIONAL OFFICE OF AUDITS:

DEN-14886)

NO COST OR COMPLIANCE

ISSUES NOTED IN INTERIM AUDIT

OF MASSACHUSETTS RECIPIENT

We performed an accounting system survey and interim financial

and compliance audit of an ATP cooperative agreement award to

a Massachusetts firm in March 2001. Total estimated costs for the

2-year project were $1,992,245, with federal funding during the

first year limited to $1,128,000. 

We reviewed project costs claimed during the first 9 months of

the award—$1,269,000, for which the recipient received reimbursement of $846,000. Our audit found that the claimed costs

were accurate and appropriately reimbursed, the firm’s accounting system was generally adequate for the purposes of the award,

and the company was adhering to award terms and conditions in

all material respects. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-14989) 

MANUFACTURING

EXTENSION PARTNERSHIP

PROGRAM 

Manufacturing has long been a staple of the U.S. economy. More

than 360,000 manufacturers employ some 18 million people and

contribute a combined total of $1.5 trillion to our annual gross

domestic product. Two-thirds of the manufacturing workforce is

employed by small and midsize firms.

To remain competitive, manufacturers must be able to stay

abreast of ever-changing technologies and meet new global challenges. But the ability of small and midsize firms to integrate new

technologies and related management practices, and thus

enhance their performance and productivity, is often hindered by

a lack of financial and technical resources. 

The Manufacturing Extension Partnership Program (MEP)

attempts to help smaller companies overcome these barriers by

entering into cooperative agreements with industry experts to

provide needed business and technical expertise. During this

semiannual period, we audited one MEP cooperative

agreement.

AUDIT DISCLOSES $2.4 MILLION IN

QUESTIONED COSTS AND MORE

THAN $600,000 IN UNREPORTED

PROGRAM INCOME 

In September 1996 NIST awarded an MEP cooperative agreement to a Minnesota firm for a business assistance project with a

total estimated cost of $33,037,125. Federal funding was not to

exceed $11,012,375, or 33.3 percent of allowable costs. The project was scheduled to run through June 2002.

We conducted an interim financial and compliance audit of costs

claimed during the 2-year period from July 1999 through June

2001 to determine whether the recipient’s accounting and financial management system complied with federal and MEP

requirements and whether claimed costs were supported and

allowable. As a result of our audit we questioned $2,440,890 in

administrative costs that the recipient had arbitrarily charged as

direct costs, rather than indirect costs under an approved cost

allocation plan, as required by the award and applicable cost principles. We also found that the recipient’s accounting system did

not accurately allocate labor and related costs among NIST and

non-NIST functions; and the firm failed to report $652,334 in

program income. The $2,440,890 in unsupported costs and the

$652,334 in unreported program income resulted in excess program income of $3,093,224.

We recommended that NIST disallow the $2,440,890 in unsupported costs and recover $813,631 in excess federal

disbursements. We further recommended that the firm be

required to develop plans and procedures to correct its accounting and cost allocation deficiencies. Finally we recommended

that the firm account for the $3,093,224 in excess program

income, which could be revised downward should unsupported

costs be resolved. (DENVER REGIONAL OFFICE OF AUDITS:

DEN-14879)
44

Technology Administration

U.S. Department of Commerce/Office of Inspector General

INVESTIGATIVE

HIGHLIGHTS 

NIST TO RECEIVE PAYMENT FROM

ATP RECIPIENT TO SETTLE FALSE

CLAIMS ACT ALLEGATIONS

A Utah chemical company that received nearly $4 million in

Advanced Technology Program funds has agreed to pay NIST

between $700,000 and $1.2 million over the next 5 years to

settle allegations that the company mischarged the government under two research awards. The settlement resolved a

qui tam (whistleblower) suit initiated by five former employees of the company, who alleged that the ATP awards had been

charged for labor and other costs actually incurred to perform

work for the company’s commercial customers. The United

States intervened in the action in May 1999, following an

investigation of the charges by OIG with the assistance of a

NIST chemist. The final amount of the settlement—the first

False Claims Act settlement involving an ATP award—will be

determined by the level of the company’s gross income over

the next 5 years; a share of the proceeds will be paid to the

original plaintiffs under the act’s whistleblower provisions. As

part of the settlement, the company has also agreed not to participate in any nonprocurement program at Commerce for a

5-year period. (WASHINGTON FIELD OFFICE OF

INVESTIGATIONS)
September 2002/Semiannual Report to Congress 45

INDEPENDENT OIG EVALUATION OF USPTO’S

INFORMATION SECURITY PROGRAM REVEALS

WEAKNESSES BUT HIGH-LEVEL

COMMITMENT TO IMPROVE

As a performance-based organization, USPTO has greater flexibility and independence in

managing its operations and thus has undertaken actions separate from the Department to manage information security. Therefore, this year we conducted a separate GISRA evaluation

of USPTO’s information security program in addition to our review of the Department’s

(see page 53). 

We sought to determine whether the bureau’s program and practices comply with the act,

which requires that agencies have effective security measures for the information resources that

support their operations. We based our evaluation on the findings of the information securityrelated reviews of USPTO we conducted during the fiscal year.

Until recently, information security had not received adequate attention at USPTO. As a result, significant weaknesses exist in planning, budgeting, implementing, reviewing, and overseeing this area.

We found that the bureau is making a determined effort to improve its information security program and

its top leadership is committed to this goal. USPTO has developed a corrective action plan that provides

a solid foundation for improvement. However, much remains to be done. 

EVALUATION RESULTS

1. GISRA requires that significant deficiencies in security policy, procedures, or practices be reported as a material weakness.

OMB instructs agencies to identify security weaknesses if there is no assignment of security responsibility, no security plan,

or no accreditation. USPTO lacks up-to-date security plans and current accreditations for its operational systems—deficiencies

we believe constitute a reportable material weakness. We recommended that USPTO report information security as a material

weakness until all mission-critical systems are accredited. In its own GISRA report, USPTO stated that it had declared

information security a material weakness in FY 2002 because none of its systems has been certified or accredited.

2. USPTO’s incident response procedures are not consistent with requirements in OMB Circular A-130 and GISRA, in that they

do not require the bureau to notify or consult OIG and external security offices and authorities about a significant security

incident. USPTO is revising these procedures to stipulate that incidents be reported to the Department, which will then relay

the information to the appropriate entities. 

3. Program officials have not given sufficient attention to assessing the risks to the information assets that support their

operations, determining the level of security required to protect them, and periodically testing and evaluating information

security controls and techniques. We found that 82 percent of USPTO’s operational systems lacked documented risk

assessments; 30 percent had outdated security plans; and none had been accredited.

4. GISRA requires agency CIOs to administer the information security program agencywide, a process that entails developing

the program, ensuring it is effectively implemented and maintained, and training and overseeing personnel who have

significant responsibilities for information security. USPTO needs improvements in all of these areas. Specifically, at the time

UNITED STATES PATENT AND

TRADEMARK OFFICE

The

United

States

Patent and

Trademark Office

administers the nation’s

patent and trademark laws.

Patents are granted, and

trademarks registered, under a

system intended to provide

incentives to invent, to invest

in research, to commercialize

new technology, and to draw

attention to inventions that

would otherwise go unnoticed. USPTO also collects,

assembles, publishes, and

disseminates technological information

disclosed in

patents.
of our evaluation, existing policies and procedures were

often not implemented, security impacts of system

upgrades were not always considered, system security

documentation was inaccurate, information security

training inadequate, and information security

requirements were neither identified in capital asset plans

nor linked to security cost estimates. 

5. USPTO needs to include information security provisions

in its IT service contracts, in light of the findings of our

review of 40 such contracts throughout the Department

(see page 51). Across the board, we found that provisions

to safeguard sensitive but unclassified systems and

information in these contracts (some of which had been

awarded by USPTO) were either insufficient or

nonexistent—a problem likely affecting the majority of

IT service contracts throughout the Department. 

6. At the time of our evaluation, meeting some important

deadlines in USPTO’s corrective action plan appeared

problematic, including those for developing the

administrative order on security policies, completing a

certification and accreditation pilot, developing systemlevel procedures, and preparing a disaster recovery plan.

In addition to the actions described above, USPTO intends to

have updated security plans in place by the end of FY 2002. It has

funded development of a certification and accreditation process,

with a goal of accrediting all high-risk systems by the end of FY

2003 and all remaining systems by the end of FY 2004. The

process will include updates of security plans every 3 years.

USPTO is also restructuring the Office of Information System

Security to increase its effectiveness; and the chief information

officer is preparing an administrative order describing USPTO’s

information security policies and clarifying staff roles and

responsibilities. In addition, all USPTO employees and contractors completed security awareness training as of June 30, 2002,

and a working group is developing a plan for providing security

training specific to the individual responsibilities of all staff

members. USPTO has also developed an information security

budget that allocates funding for needed improvements.

(OFFICE OF SYSTEMS EVALUATION: OSE-15250)

USPTO IS ACTING TO

RESOLVE SECURITY

WEAKNESSES IN HIGHPRIORITY PATENT

APPLICATION CAPTURE AND

REVIEW AUTOMATED

INFORMATION SYSTEM

As part of our GISRA work, we evaluated USPTO’s Patent

Application Capture and Review Automated Information

System, or PACR. This system captures, stores, maintains,

retrieves, and prints digital images of U.S. patent applications

and is thus critical to USPTO’s daily operations. We used

NIST’s Security Self-Assessment Guide for Information

Technology to assess implementation of a sample of PACR’s

management and operational controls for information security

(see table below). We originally intended to assess technical

controls as well, but opted not to because USPTO was unable to

provide consistent information in this area and because the

bureau will evaluate those controls as part of a pilot project it is

conducting on certification and accreditation in response to our

agencywide evaluation (see March 2002 issue, page 74).

USPTO is implementing other recommendations from that evaluation, which should address many of the problems we

identified in our PACR review. 

MANAGEMENT CONTROLS 

We noted weaknesses in all the management controls we

assessed. However, weaknesses in the first four controls are

being addressed as part of the pilot project.

1. Risk management. No risk assessment had been performed for PACR; therefore, we could not determine

whether security measures were adequate to deal with

existing threats and vulnerabilities.

2. System security plan. USPTO had developed security

plans for PACR but could not document their official

approval. Hence, PACR lacks a critical component needed

for accreditation—an approved security plan. 

3. Review of security controls. OMB requires that agencies

perform a formal management review of security controls,

which should include an independent assessment, at least

every 3 years and whenever a significant system modification occurs. At the time of our evaluation, PACR

controls had not been tested.

4. Authorize processing. OMB also requires that management officials formally authorize (accredit) the use of a

system before it becomes operational, and reauthorize it

whenever a significant change occurs or at least every 3

46

United States Patent and Trademark Office

U.S. Department of Commerce/Office of Inspector General
September 2002/Semiannual Report to Congress 47

years. PACR has been upgraded several times since its

implementation, but none of the versions have been

accredited. 

5. Life cycle. At the time of our review, USPTO was upgrading operations by switching to a more capable local area

network, which required changes to PACR network components and related software. However, these changes were

not well planned, nor did they adequately consider network

security implications: just prior to the initial transition step

for PACR, USPTO could not identify the necessary

changes to software and firewall rules. The information

systems security officer had not been notified of the

impending firewall changes, even though, at the time, he

was the acting director of the Office of Information

Security, which is responsible for directing and reviewing

such proposed modifications.

In addition, the PACR system documentation we reviewed did

not reflect the current system and four network topology diagrams we examined had the same issuing date but each was

different from the others and none accurately described the thencurrent or planned topology. Although they were describing the

same system, the High-level Architecture document and the

Operational Support Plan contained different information concerning the network topology, equipment lists, and points of

contact. USPTO needs to improve its process for keeping documentation current and for tracking its status. 

OPERATIONAL CONTROLS 

The physical security measures in place during our review provided appropriate protection for equipment that PACR relies on

to support USPTO operations. Servers that store images of patent

applications, as well as the firewall that prevents unauthorized

access to them, are located in a secure data center that has effective electronic entry controls and round-the-clock security

personnel. Scanning servers that create the images are located in

a separate secure facility, but USPTO plans to relocate them with

the storage servers. We noted that in their current location, access

is controlled by a cipher lock, the combination to which is not

changed when employees and contractors who have access conclude their work with USPTO. We recommended that USPTO

implement an agencywide policy for changing cipher combinations periodically as well as whenever an employee or contractor

no longer requires access.

We found problems in the other two operational controls we

assessed. Specifically, USPTO does not have a contingency plan to

compensate for the loss of PACR operations in the event the system

becomes nonfunctional, despite OMB requirements for such plans;

and PACR system administrators have not received specialized security training tailored to their information security responsibilities.

SCOPE OF OIG REVIEW OF SECURITY

CONTROLS FOR PATENT APPLICATION

CAPTURE AND REVIEW SYSTEM

Control Category Control Assessed

Management Risk Management X

Review of Security 

Controls X

Life Cycle X

Authorize Processing X

System Security Plan X

Operational Personnel Security

Physical Security X

Production, Input/ Output 

Controls

Contingency Planning X

Hardware and Systems

Software Maintenance

Data Integrity

Documentation

Security Awareness,

Training, and Education X

Incident Response 

Capability

Technical Identification and 

Authentication

Logical Access Controls

Audit Trails

AGENCY RESPONSE

USPTO agreed with all of our recommendations and has begun

taking action to address them. (OFFICE OF SYSTEMS EVALUATION: OSE-14926)

United States Patent and Trademark Office
48

United States Patent and Trademark Office

U.S. Department of Commerce/Office of Inspector General

INVESTIGATIVE

HIGHLIGHTS 

FALSIFIED TIME AND

ATTENDANCE RECORDS

RESULT IN THEFT CHARGES

On September 23, 2002, a criminal complaint was filed in U.S.

district court for the Eastern District of Virginia charging a former USPTO employee with nine counts of theft of government

property. The charges were based on an OIG investigation, which

disclosed that in her role as office timekeeper, she had inflated

her reported hours of work over a 7-month period to obtain

approximately $7,000 in salary payments to which she was not

entitled. The defendant is scheduled to appear for arraignment at

the end of October. (SILVER SPRING FIELD OFFICE OF

INVESTIGATIONS)

SENIOR USPTO OFFICIAL

COUNSELED FOR APPEARANCE

OF CONFLICT

A senior USPTO official was counseled for engaging in actions

that created the appearance of a conflict of interest after an OIG

investigation disclosed his participation in discussions and other

activities involving an outside organization that was negotiating

an employment arrangement with his wife. In an effort to eliminate any real or apparent conflicts in the future, the official was

also assigned to head a new unit that-unlike his previous office—

would not have direct responsibility for matters relating to his

wife’s employer. (SILVER SPRING FIELD OFFICE OF INVESTIGATIONS)
STRONGER INTERNAL CONTROLS AND

MANAGEMENT OVERSIGHT NEEDED IN THE

OFFICE OF ADMINISTRATIVE SERVICES

The Office of Administrative Services (OAS), a component of the Office of the Secretary,

provides administrative support to Commerce headquarters and various units, ranging

from mail handling, printing, and library services, to property and vehicle management.

In addition, OAS provides Department-wide policy and oversight in such areas as construction, energy conservation, and environmental management.

At the request of the Department’s Chief Financial Officer and Assistant Secretary

for Administration (CFO/ASA), we conducted an inspection of internal operations

at OAS, specifically focusing on practices involving purchase card and cell phone

use, cash awards, and overtime. 

Overall, we found problems in each of the areas we evaluated, some of which were

systemic, others that were limited to specific situations, and most of which were

due to poor management practices and inadequate internal controls. We detailed a

series of recommendations to resolve these problems in a report to the CFO/ASA,

who responded with appropriate corrective action. Our key findings and recommendations, as well as departmental steps taken to address the deficiencies, are

summarized below. 

■ Purchase card use did not always adhere to policy. OAS participates in the federal

purchase card program, which is designed to streamline the process for making small

purchases and reduce associated administrative costs and paperwork. Our examination of

records for purchases made by 26 cardholders between March 2001 and March 2002 revealed

that these employees did not always keep documentation to support purchases and did not use

required sources of supply. For 8 percent of the purchases we reviewed, employees did not obtain the

necessary approval. 

We recommended that cardholders be required to keep a log of all purchase card transactions and retain all original documentation; that approving officials review the log and statement of account, reconcile and approve all purchases monthly,

and ensure that cardholders secure services and supplies from mandatory sources unless they have written authorization to

purchase from commercial sources. The Department agreed with our recommendations and has implemented procedures to

ensure that OAS purchase card usage adheres to applicable policy.

■ Awards program was not well managed. OAS employees received approximately $508,476 in departmental awards during

fiscal years 1999 through 2001. However, we found a disorganized awards process that was poorly supervised and had weak

internal controls. As a result, Commerce guidelines were violated. Because we were concerned that the deficiencies might be

symptomatic of a Department-wide problem, we issued a special memorandum to the CFO/ASA prior to completion of our

review, to alert him to our findings and prompt him to take action without delay. (See box on next page for a full discussion

of the problems we identified, our recommendations, and the Department’s response.) 

The

United States

Department of

Commerce promotes job

creation and improved living

standards for all Americans by

creating infrastructure that fosters

economic growth, technological competitiveness, and sustainable growth.

The Department has three strategic goals:

Goal 1: Provide the information and

the framework to enable the economy

to operate efficiently and equitably.

Goal 2: Provide the infrastructure for

innovation to enhance American

competitiveness.

Goal 3: Observe and manage the

Earth’s environment to promote

sustainable growth.

The Department has also established

a Management Integration Goal

that is equally important to all

bureaus: Strengthen management at all levels.

49

DEPARTMENT-WIDE

MANAGEMENT

September 2002/Semiannual Report to Congress
50

Department-Wide Management

U.S. Department of Commerce/Office of Inspector General

OAS'S PROBLEMS WITH ITS CASH AWARDS PROGRAM REVEAL

DEFICIENCY IN DEPARTMENTAL PROCESS

During our OAS review, we found a number of management control weaknesses in the office's administration both of its own cash

awards program and that of the Department, which we felt warranted the immediate attention of the Chief Financial Officer and

Assistant Secretary for Administration, as they suggested a possible Department-wide problem. In June 2002 we presented these

findings to him in a special memorandum:

■ Payroll taxes were not withheld from $24,650 in awards paid to 50 employees because OAS failed to provide the

appropriate paperwork to the Office of Human Resources Management (OHRM), and OHRM did not have a process to

detect such problems. 

■ Nine OAS employees received awards that exceeded departmental thresholds—in calendar year 2001, six received more than

the $1,000 limit for Cash-in-Your-Account (CIYA) awards (the awards ranged from $1,200 to $1,700); in FY 2001, three

received a combination of awards totaling more than the allowable 10 percent of their base pay (in one case, award amounts

totaled 30 percent of the employee's base).

■ Justification for special act awards was in some cases not provided, in others weak, and in still others did not fit the

award criteria. 

Our subsequently issued report (IPE-15131) provided the following recommendations to correct these deficiencies: OAS should

(1) establish a documented awards process that has a designated manager, an awards tracking mechanism, and a training

component on departmental guidelines; (2) institute reconciliation procedures to verify that award amounts are accurate and

properly taxed; and (3) develop automated controls to ensure that awards comply with departmental threshold requirements.

The CFO/ASA agreed with these recommendations and has taken appropriate corrective action. The director of the Office of

Management Support Services was designated as OAS's incentive awards program officer. OHRM revised the CIYA award policy

to require that all cash awards be processed through the Department's payroll service, and that the bureaus develop a tracking

system to document the net dollar value of CIYA awards made to individual employees and monitor compliance with the annual

$1,000 CIYA award limitation. OAS will also use its tracking system to ensure that total awards for each employee do not exceed

10 percent of base salary. And, finally, prior to processing CIYA awards, OHRM will conduct a comprehensive technical review

of them to verify eligibility and conformance with award procedures and dollar limitations.

Also, in response to our report, the acting director of the Office of Human Resources Management asked Commerce bureaus to

examine their awards transactions to determine whether CIYA awards were being properly taxed. By the end of September 2002

it appeared that the failure to withhold taxes from these awards was a problem at four units. Commerce management is working

to identify all nontaxed awards and correct the weakness. 

■ Cell phones were used for personal calls. Some cell

phone records appeared to contain calls that did not

pertain to official government business, and monthly bills

were sometimes exorbitant—frequently ranging from

$400 to $800, and in two instances topping $1,000. We

recommended that OAS seek full reimbursement for

personal calls from any employees who have yet to make

such payment; develop written policies that clearly state

appropriate and allowable use of government-issued cell

phones; provide cell phones only to staff who absolutely

need them to perform their jobs, and tailor their calling

plan to expected monthly usage; and instruct managers to

monitor cell phone bills for evidence of abuse and to take

appropriate action. 

The Department concurred with our recommendations

and has established procedures to ensure that cell phones

are used for official government business only and operate on the most economical service plan. In addition,

OAS managers are reviewing cellular phone bills to

determine the total amount that employees owe for personal calls. 

■ Time and attendance controls and documentation

were lacking. We reviewed time and attendance records

for three employees to verify overtime charges of 1,152

hours during 2001—including one claim of 80 overtime

hours in a 2-week pay period. However, we were unable

to substantiate the claimed hours because, among other
September 2002/Semiannual Report to Congress 51

Department-Wide Management

things, time and attendance records and overtime

authorizations were incomplete or missing. OAS needs to

better manage the time and attendance process to ensure

that overtime authorizations are properly completed and

approved and that timekeepers maintain all

documentation for the required period of 6 years. The

Department has implemented procedures to ensure that

OAS’s time and attendance records are better managed.

■ Energy and environmental programs need attention.

The Department’s Energy Management Program

promotes use of renewable energy technologies among

the bureaus and helps them reduce energy and water

consumption and manage utility costs. The

Environmental Management Program helps bureaus

comply with environmental legislation. OAS, which

administers both programs, has been slow to take action

to ensure that the Department is in compliance with

applicable laws and regulations pertaining to federal

energy and environmental programs.

For example, Commerce’s Strategic Implementation Plan

for Energy Management contains 70 action items that

have not been completed. OAS recently hired an energy

management officer, who should be tasked with completing the items and given the staff support and resources to

do so. The Department agreed, and has directed the energy manager to help Commerce bureaus address the

objectives outlined in the energy management plan. 

The environmental program is supposed to coordinate

reviews and surveys that require Department-wide

response, develop an inventory of Commerce sites that

store regulated and/or hazardous materials, perform environmental audits, establish an intra-agency task force on

environmental compliance, and provide guidance on

environmental regulations and training in meeting their

requirements. To date, much of this remains undone. The

environmental manager position has been vacant since

May 2002, and in the interim, there has been virtually no

progress on developing the program. We recommended

that OAS fill this position as quickly as possible to

ensure compliance with regulations as well as to provide

adequate protection for the Department. The Department

is in the process of hiring an environmental manager.

Overall, we are very pleased with the prompt attention and action

taken in response to the matters we raised in our report. (OFFICE

OF INSPECTIONS AND PROGRAM EVALUATIONS:

IPE-15131) 

INFORMATION SECURITY

REQUIREMENTS NEED

TO BE INCLUDED IN

THE DEPARTMENT’S

INFORMATION TECHNOLOGY

SERVICE CONTRACTS

As the federal workplace has become more dependent on information technology, the government has increased its reliance on

outside contractors to perform various IT services. These services may be performed onsite or remotely, from contractors’

facilities. In many cases, contractors have access to sensitive

information, or, by virtue of the services they perform, may be

able to gain such access.

In September 2001 OIG completed an independent evaluation of

the Department’s information security program, as required by

the Government Information Security Reform Act, in which we

identified numerous information security weaknesses. Among

those deficiencies was the lack of sufficient policy and guidance

to ensure that contract documents for IT services contain adequate information security provisions.

During this semiannual period, we followed up on this finding

from our earlier report by reviewing the security provisions contained in a sample of the Department’s IT service contracts. We

found that contract provisions to ensure the safeguarding of sensitive but unclassified systems and information are either missing

or inadequate, and that federal guidance for establishing such

provisions is minimal and vague. 

We made five recommendations aimed at ensuring that all contracting offices within Commerce include adequate information

security provisions in IT service contracts and thus protect the

Department’s sensitive IT information and assets. Essentially,

we urged the Department to establish standard contract provisions for safeguarding the security of unclassified systems and

to disseminate clear, detailed policy for acquiring these systems

and services. Such policy should require that contracting

offices, with assistance from information security and program

officials, among other things, assess the information security

risk associated with the proposed service or system during the

acquisition planning phases; identify and include appropriate

security requirements in specifications and work statements;

monitor contractor performance to ensure compliance with

these requirements; and terminate the contractor’s access to

systems and networks once the contract is closed out. We also

advised that the Department should review all current contracts

and solicitations for IT services to determine whether information security provisions should be added to them, even though

such revisions may increase contract costs, and to ensure that
52

Department-Wide Management

U.S. Department of Commerce/Office of Inspector General

all procurement personnel receive appropriate training in information security so that they can properly prepare, negotiate, and

monitor these contracts. 

DEPARTMENT’S RESPONSE

The Department ’s Chief Financial Office and Assistant Secretary

for Administration generally agreed with all of our recommendations and is taking actions to implement them. (OFFICE OF

SYSTEMS EVALUATION: OSE-14788)

STRONGER MANAGEMENT

CONTROLS WERE NEEDED

FOR CAMS 

The Commerce Administrative Management System—an

important effort to improve and unify Department-wide financial management—is expected to be successfully implemented

in most Commerce organizations by FY 2004. The exceptions

are ITA, USPTO, and NTIS, which will continue to obtain

accounting services from other sources. According to the

Department’s FY 2004 CAMS Capital Asset Plan, starting in FY

2004, annual operation and maintenance costs are expected to

exceed $35 million. 

In October 2001, funding scenarios under consideration would

have significantly reduced CAMS’s FY 2002 budget for development and maintenance. The Department believed these

funding levels would prevent NOAA from completing its CAMS

implementation in FY 2002. Because we were monitoring

CAMS’s progress, to conduct our own evaluation we requested

information that we believed the Department would have needed to determine the impact of the proposed funding level. The

Department did not provide all of the information we requested,

and based on the information we received, we were not able to

determine the likely impact of the proposed funding level. 

Plans for CAMS major system

activities needed to be improved

At the time of our fieldwork, the CAMS Support Center could

not readily provide a detailed plan that specified the cost of all

major system activities. The plan it provided for our review at the

beginning of FY 2002 accounted for only a portion of these costs

and activities. We were informed that by the beginning of FY

2002, the center knew informally how it would spend its funds

but we were not provided a complete, documented plan.

Notwithstanding the obvious progress made on CAMS recently,

CAMS’s history of difficulties and its importance to Commerce’s

financial management prompted us to recommend that the support center prepare and maintain a plan that (1) specifies full

costs for all major system developments and enhancements as

well as operations and maintenance activities; and (2) can be substantiated by an analysis of the work required to meet capability

and schedule goals. The plan should be updated by the start of the

fiscal year to incorporate the most current information about program funding and system activities, including all associated

costs. We subsequently received documentation indicating that

the CSC has initiated the development of the planning information we initially requested. This documentation will enhance

departmental managers’ and other stakeholders’ management and

oversight of CAMS. 

The total actual costs of CAMS

major system activities needed

to be tracked in a more

transparent manner

The Clinger-Cohen Act requires executive agencies to measure

program progress “in terms of cost, capability of the system to

meet specified requirements, timeliness, and quality.” Although

the center tracked the cost of “contract tasks,” until recently, it

did not systematically track the total actual cost of major system

activities. This approach did not provide the level of information

we believe is necessary for effectively evaluating progress. We

recommended that the Department take the necessary actions to

ensure that the total actual cost of major system activities for

CAMS is tracked. After our draft report was issued, we received

documentation indicating that the CSC is tracking total actual

costs of major system activities.

CAMS reports needed to provide

greater visibility into the program 

Commerce prepares two types of reports on CAMS spending and

progress: (1) The annual CAMS Capital Asset Plan, submitted to

OMB, is supposed to describe and justify the program; detail its

cost, schedule, and capability goals; and report progress in meeting goals; (2) CAMS Quarterly Reports are supposed to show

progress against the Department’s established baseline schedule

and cost estimates for major systems activities.

We examined the reports issued in FY 2001 and determined that

neither of the reports provided adequate visibility into the program’s baseline plans or into the impact of program changes. The

Department, we concluded, could improve both reports so that

they provide the information needed to better evaluate CAMS

program progress.
September 2002/Semiannual Report to Congress 53

Department-Wide Management

We specifically recommended that the Capital Asset Plan be

updated to provide cost estimates that are based on the work to

be performed and supported by an appropriate cost-estimating

methodology, and to include a comparison of actual progress

toward meeting schedule and system capability goals. We further recommended that the Quarterly Reports describe the

impact of deviations from the baseline on future costs and delivery schedules. 

When we met with CSC officials in July, after our draft report

was issued, we obtained the quarterly report for the second quarter of FY 2002 and found that it demonstrates some changes

consistent with our recommendation. Specifically, the report

describes the impact of delays on schedule and users, although it

does not address their effect on program costs. The Department

believes that additional information is not needed because the

report is not intended for the uses we have suggested, but rather

to provide summary status information only. We also were given

a draft FY 2004 CAMS Capital Asset Plan, which included

revised fiscal year costs and estimated future costs. A detailed

schedule, capability goals, and actual progress information were

not included in the material we received.

A performance-based

management system should be

implemented and maintained 

The support center should implement a performance-based management system as soon as possible to support day-to-day CAMS

management and comply with OMB requirements. Performancebased management provides objective information about a

program’s progress to protect against excessive deviations from

goals. At the time of our fieldwork, the center had no integrated

system for tracking cost, schedule, and capabilities. CSC officials

indicated that the center did have a budgetary process for collecting and monitoring schedule, cost, and progress data and that

an integrated software system that supports full performancebased management will be implemented. 

Summary of

Department’s Response

In its response to our draft report the Department disagreed with

many of our specific findings and indicated it believed it generally had the information needed to manage the CAMS program.

However, the Department did subsequently agree that further

improvements can be made. (OFFICE OF SYSTEMS EVALUATION: OSE-14129)

SECOND DEPARTMENTAL

GISRA EVALUATION FINDS

PROGRESS MADE, BUT

MUCH WORK STILL AHEAD

OIG conducted its second annual evaluation of Commerce’s

information security program and practices, as mandated by the

Government Information Security Reform Act, to determine

progress made toward complying with GISRA and any problems

that remain. We based our evaluation on the results of securityrelated OIG reviews we conducted at the Department and its

operating units during FY 2002 and on interviews and written

materials we received from chief information officers and senior

information security officials at the Department and at BIS, ITA,

NTIA, and NOAA.

In last year’s evaluation we reported that the Department was

striving to improve information security and make it an integral

component of its business operations, but concluded that because

this issue has received inadequate attention in the past, the effort

required to develop and oversee an effective security program

was substantial. (See September 2001 issue, page 59.) As we recommended, Commerce identified inadequate information

technology security controls as a material weakness in its FY

2001 statement on financial and management controls. 

This year we noted that the Department has made considerable

strides toward establishing the foundation for an effective security program, but numerous weaknesses persist. Most notably,

many of the IT systems in the units we evaluated are operating

without required risk assessments, approved security plans, or

accreditations. Commerce established September 30, 2002, as the

deadline for having approved security plans for all operational

systems. We believe this schedule is unrealistic for developing

high-quality plans, and until all the Department’s national-10 and

mission-critical systems are accredited, Commerce should continue to report information security as a material weakness. The

Department’s FY 2002 GISRA report states that the CIO intends

to recommend to the Secretary that information security be

repeated as a material weakness.

Despite these serious deficiencies, we found in this year’s review

that progress has been made on many fronts and that the

Department’s determination to improve information security continues. Last fiscal year the Secretary directed top management to

(1) give information security high priority, sufficient resources,

and personal attention; and (2) restructure (and thus strengthen)

IT management by having a CIO at each unit who reports to the

unit head and the Department CIO, and giving unit CIOs greater

authority over IT resources. Action on these directives has fol10 National-critical systems are part of the nation’s critical infrastructure.
54

Department-Wide Management

U.S. Department of Commerce/Office of Inspector General

lowed. Officials at every unit we reviewed are giving this issue

their personal attention and taking steps to improve the status of

information security. BIS, ITA, and NOAA, for example, are

working to ensure that the Department CIO’s information security guidance is implemented. BIS reallocated $500,000 to

information security in FY 2002 and ITA devoted $372,000 in

carryover funds. The Department is expanding information security staff at the CIO’s office and requires CIO concurrence with

IT investment decisions for all major systems. Operating unit

CIOs must concur with significant IT investments not subject to

departmental approval.

In FY 2001 we noted that the process for identifying the

Department’s critical assets—those deemed essential to the minimal functioning of the economy—needed to be improved and

that Commerce performs too few reviews of unit compliance

with government-wide and Department-wide security requirements. Commerce officials responded to these findings in FY

2002 by initiating a Project Matrix review—a process that will

identify its critical assets and any public or private systems on

which they depend—and by establishing a compliance review

process to evaluate all operating unit information security programs and systems over a 3-year cycle.

Revised Department-wide information

security policy

In response to our recommendation last year, the Department

updated and expanded its information security policy. (As of

September 30, 2002, the draft was being circulated for review.) A

current and complete policy is essential for establishing an effective Department-wide security program. The new policy will set

requirements that are consistent with GISRA guidance and that

target a number of deficiencies we identified in our 2001 evaluation and again this year: 

■ Incident response procedures. Last year we found that

only 4 of 15 operating units had a formal incident

response capability. The draft policy includes guidance

on incident identification, handling, response, and

reporting. In a related move, the Department established

a computer incident response team (CIRT) to give

incident response capabilities to units that do not

have them. 

■ Information security clauses in IT service contracts.

We noted last year a lack of sufficient policy and

guidance to ensure that contract documents for IT

services contained adequate information security

provisions and confirmed the widespread nature of this

deficiency in a more extensive review conducted during

this semiannual period (see page 51). The Department’s

draft policy provides specific guidance to protect

sensitive systems and information in contracting for IT

resources and services.

■ Personnel training. The policy stipulates that new

employees and contractors must receive information

security awareness training within 30 days of hire and

prior to using any IT resource, and all existing employees

and contractors who have access to sensitive systems

must have annual refresher training. In the past year the

operating units provided security awareness training for

all employees and contractor personnel either through

programs of their own or via web-based training made

available by the CIO. But the policy falls short of

adequately addressing the need for appropriate training

for personnel with significant information security

responsibilities. However, Commerce has formed a

working group whose goal is to improve IT security

awareness and training Department-wide. As part of its

mission the group intends to specify employee functions

that require general and specialized training.

The draft policy also directs operating units to maintain a plan for

correcting identified information security weaknesses, tracking

progress at eliminating them, and reporting monthly to the

Department CIO on the status of these efforts. 

Persistent weaknesses

The many strides the Department has made—though important—

remain somewhat overshadowed by the broad-based lack of

adequate information security controls, which prompted our

repeat recommendation that Commerce report IT security as a

material weakness. GISRA gives senior agency officials responsibility for assessing the information security risks for programs

and systems over which they have control, determining the levels

of security appropriate to protect associated operations and

assets, and periodically testing and evaluating information controls and techniques. The Secretary has charged all operating unit

heads with these same responsibilities for their organizations.

GISRA also requires the Department’s CIO to ensure that effective policies and procedures are implemented for the systems that

support the CIO’s functions. Operating unit CIOs are expected to

do the same. 

However, some program officials and operating unit CIOs have

yet to fully execute these responsibilities for many of the systems they control. As we have noted, the operating units we

reviewed had largely failed to conduct risk assessments on

their systems—a prerequisite for developing security plans—

despite the Department’s September 30 deadline for having

approved security plans in place. (See, for example, our findings for NIST, page 39.) Numerous systems were operating

without approved security plans or accreditation. We found

only one instance of documentation of security control testingthis was for a NOAA system at the Office of Oceanic and

Atmospheric Research.
September 2002/Semiannual Report to Congress 55

Department-Wide Management

In addition, the reviews of general controls on financial information systems, conducted by outside auditors as part of the audit of

Commerce’s FY 2001 financial statements, identified weaknesses pertaining to information security at several bureaus. In

general, the corrective action plans for financial systems, if

implemented appropriately, will address the weaknesses. In some

cases, issues have already been resolved. 

Finally, we noted in last year’s evaluation that most FY 2002 capital asset plans failed to identify security costs. Most of the FY

2003 capital asset plans we reviewed this year did specify those

costs, but only a few explained how the funds would be spent and

several did not detail specific risks and security controls for the

life cycle of the system. We concluded that the units should better identify these life-cycle issues so that security expenditures

can be better estimated and justified. (OFFICE OF SYSTEMS

EVALUATION: OSE-15260)

MEMORANDUM NOTES

IMPROVEMENTS,

REMAINING SAFETY

VULNERABILITIES AT

COMMERCE HEADQUARTERS

BUILDING

In our March 2002 Semiannual Report to Congress, we

detailed the findings of our safety inspection of selected areas

in Commerce headquarters—the Herbert C. Hoover

Building—which uncovered a number of potential hazards and

vulnerabilities. (See March issue, page 81.) To assess the

Department’s response to our corrective recommendations, we

conducted another walk-through during this reporting period

and were pleased to find that most of the problems we had

identified in the basement and subbasement have been

resolved. These areas have been cleaned up and are in relatively good order: equipment and furniture have either been

removed or stored more appropriately; trash that once littered

the floors has been collected and disposed of; chemicals and

paint are more carefully stored; and appropriate security

devices have been installed on doors and in corridors. The

Office of Security reported that it regularly patrols these areas

as well. 

Only three of our recommendations remain open, including that

the Department implement new safety and cleanliness standards

for contractors, and provide backup for the Energy Management

Computer System. Commerce officials are working to correct

these lingering safety and security concerns. We will report on

their progress in future semiannual reports. 

PREAWARD FINANCIAL

ASSISTANCE SCREENING

As part of our ongoing emphasis on prevention of fraud and mismanagement, we continue to work with the Office of Executive

Budgeting and Assistance Management, NOAA and NIST grant

offices, and EDA program offices to screen the Department’s

proposed grants and cooperative agreements before award. Our

screening serves two functions: it provides information on

whether the applicant has unresolved audit findings and recommendations on earlier awards, and it identifies any negative

financial or investigative history on individuals or organizations

connected with a proposed award. 

During this period we screened 1,132 proposed awards. For 89 of

the awards, we found major deficiencies that could affect the

ability of the prospective recipients to maintain proper control

over federal funds. On the basis of the information we provided,

the Department delayed 47 awards until concerns were satisfactorily resolved and established special conditions for 42 awards

to adequately safeguard federal funds. (OFFICE OF AUDITS)

Preaward Screening Results

Award

Results Number Amount

Awards delayed to 

resolve concerns 47 $29,222,900

Special award conditions 

established 42 $24,816,864

NONFEDERAL AUDIT

ACTIVITIES 

In addition to undergoing OIG-performed audits, certain recipients of Commerce financial assistance are periodically examined

by state and local government auditors and by independent public accountants. OMB Circular A-133, Audits of States, Local

Governments, and Non-Profit Organizations, sets forth the audit

requirements for most of these audits. For-profit organizations

that receive Advanced Technology Program funds from NIST are

audited in accordance with Government Auditing Standards and

NIST Program-Specific Audit Guidelines for ATP Cooperative

Agreements, issued by the Department. 

We examined 161 audit reports during this semiannual period to

determine whether they contained any audit findings related to
56

Department-Wide Management

U.S. Department of Commerce/Office of Inspector General

Department programs. For 94 of these reports the Department

acts as oversight agency and monitors the audited entity’s compliance with the OMB circular or NIST’s program-specific

reporting requirements. The other 67 reports are from entities for

which other federal agencies have oversight responsibility. We

identified a total of 30 reports with findings related to the

Department of Commerce.

ATP

OMB ProgramA-133 Specific

Report Category Audits Audits Total

Pending 

(April 1, 2002) 6 57 63

Received 138 55 193

Examined 102 59 161

Pending 

(September 30, 2002) 42 53 95

The following table shows a breakdown by bureau of the $352

million in Commerce funds audited.

Bureau Funds

EDA $ 40,406,093

NIST* 136,727,925

NOAA 15,133,905

NTIA 234,510

Multiagency 157,740,152

Agency not identified 1,972,000

Total $352,214,585

* Includes $107,190,891 in ATP program-specific audits.

The audits identified a total of $8,479,480 in questioned costs. In

most reports the subject programs were not considered major

programs; thus the audits involved limited transaction and compliance testing against laws, regulations, and grant terms and

conditions. The 30 reports with Commerce findings are listed in

Appendix B-1. (ATLANTA AND DENVER REGIONS’ OFFICE

OF AUDITS)
September 2002/Semiannual Report to Congress 57

IGs FRAZIER, REHNQUIST,

AND FRIEDMAN TESTIFY

BEFORE CONGRESSIONAL

COMMITTEE ON PURCHASE

CARD OVERSIGHT

On May 1, 2002, Inspectors General Johnnie Frazier, Janet

Rehnquist, and Gregory Friedman testified about oversight of the

purchase card programs at Commerce, HHS, and Energy, respectively, before the U.S. House of Representatives’ Subcommittee

on Oversight and Investigations, Committee on Energy and

Commerce. In the past year, intense congressional and media

scrutiny of the government’s purchase card program tended to

focus on past abuses. In April 2002 the OMB director requested

that each agency review the adequacy of internal controls for purchase and travel card expenditures and prepare separate remedial

purchase and travel card program action plans by June 2002.

OMB subsequently asked agency leaders to provide quarterly

reports on their program improvement plans.

During his testimony, IG Frazier shared with the subcommittee

some of “the good, the bad, and the ugly” things our reviews

revealed about Commerce’s program.

■ The good: The overwhelming number of Commerce and

other federal employees use their government purchase

cards responsibly—following appropriate procedures,

avoiding improper purchases, and staying alert to best

practices that can help the program operate efficiently. 

■ The bad: The program still has a number of systemic

weaknesses and problematic practices that needlessly

leave it open to fraud, waste, and abuse. 

■ The ugly: Reports in the media and from OIGs and

other oversight organizations have highlighted

irresponsible and illegal use of government purchase

cards, and as a result have given the purchase card

program a negative image. 

Mr. Frazier noted that government employees have relied on purchase cards for more than 15 years to expedite making small

purchases, obtain training, and otherwise streamline unwieldy

federal procurement procedures. As Commerce and other agencies push for greater efficiency in the process, purchase cards will

become an evermore critical procurement option and their use

will inevitably increase. Mr. Frazier suggested that improving the

purchase card program government-wide must be guided by

three key principles:

■ Stop any and all personal use of government cards with

aggressive oversight and strong disciplinary actions.

■ Caution managers to address systemic weaknesses and

problematic practices.

■ Go forward at full speed to implement best practices and

other proactive efforts that will prevent problems and

promote efficiencies.

In 1995 this office began conducting audits and reviews of purchase card use and related activities within the Department. Since

then we have issued 11 audit reports dealing specifically with the

purchase card program. Our audits included headquarters operations at MBDA, NTIA, and USPTO, as well as overseas posts,

certain NIST laboratories, NOAA science centers, and regional

offices. Our primary objective was to determine whether

purchase card use was in compliance with the Federal

Acquisition Regulation, the Commerce Acquisition Manual, and

the Department’s Personal Property Management Manual. 

We also covered purchase card use in a number of inspection

reports as part of overall reviews of administrative services at the

OIG HIGHLIGHTS: 

SPECIAL ITEMS OF NOTE

IGs Frazier, Friedman, and Rehnquist being sworn in to testify before

the congressional Committee on Purchase Card Oversight.
58

OIG Highlights: Special Items of Note

U.S. Department of Commerce/Office of Inspector General

offices inspected. We have found that these proactive reviews are

especially useful in identifying systemic weaknesses in internal

controls designed to safeguard the program. 

We are conducting a Department-wide audit of the purchase

card program in accordance with our audit goals for 2002-2003.

Based on our reviews, we believe the vast majority of

Commerce’s 6,000 cardholders are using the cards responsibly

and adhering to guidelines. We also know that our work, along

with that of Commerce officials and managers, must continue

as we look for ways to improve the program and implement best

practices to resolve problems, prevent and detect fraud, and

encourage efficiencies. A number of proactive efforts deserve

special emphasis:

■ Properly train and support approving officials

and cardholders.

■ Publicize common problems and their solutions.

■ Look for problems before the problems find you.

■ Maintain sufficient and constant oversight.

The Subcommittee on Oversight and Investigations plans to hold

additional hearings this spring, as do other oversight committees,

signifying a continued high level of congressional interest.

THE PRESIDENT’S COUNCIL

ON INTEGRITY AND

EFFICIENCY 

The President’s Council on Integrity and Efficiency (PCIE), comprised of the presidentially appointed inspectors general, was

established to address integrity, economy, and effectiveness

issues that transcend individual government agencies and to

increase the professionalism and effectiveness of IG personnel

throughout the government. To accomplish their mission, PCIE

members meet regularly to address concerns pertinent to their

oversight responsibilities. They also conduct interagency audits,

inspections, and investigations to prevent fraud, waste, and abuse

and promote economy and efficiency in federal programs and

operations. By combining their efforts, they are able to more

effectively address government-wide issues of fraud, waste, and

abuse as well as inefficiency and ineffective management.

Council members also develop policies, standards, and approaches to aid in establishing a well-trained and highly skilled

IG workforce. 

Commerce Inspector General Johnnie Frazier is a member of the

PCIE and chair of the PCIE Inspection and Evaluation Committee.

INSPECTION AND EVALUATION

COMMITTEE

A primary function of the Inspection and Evaluation (I&E)

Committee is to share and develop better ways to communicate

inspection and evaluation findings on crosscutting issues. The

goals of the PCIE Inspection and Evaluation Committee are to 

■ provide positive contributions to the inspector general

community as well as the federal government as a whole

in improving the management of federal programs; 

■ improve the methodologies of inspection and evaluation

by sharing effective practices and insights; and 

■ improve the analytic and administrative skills of OIG

inspectors and evaluators by providing training in a

variety of pertinent topics. 

Recently, building on the work of the OIGs at Education,

Commerce, and other agencies, the committee completed its purchase card project with the publication of A Practical Guide for

Reviewing Government Purchase Card Programs (see below).

The committee developed and published the report as an adjunct

to individual agency purchase card review programs, to aid the

IG community in addressing the increasingly important issue of

purchase card use and abuse.

Other important issues—emergency preparedness, the status of

foreign nationals working for government agencies, procurement

and acquisitions—are concerns all or several OIGs must grapple

with and have been offered as future project areas. The committee proposes projects to the PCIE and develops procedures and

methodologies to achieve project goals.

A PRACTICAL GUIDE FOR

REVIEWING GOVERNMENT

PURCHASE CARD

PROGRAMS

In June this office published PCIE’s A Practical Guide for

Reviewing Government Purchase Card Programs, a collaborative

effort with the Department of Education OIG and several other

Offices of Inspector General. It is a helpful addition to the growing number of tools federal IGs have already developed to use in

overseeing purchase card activities in their agencies. 

Government-wide, purchase cardholders spent $13.7 billion in

FY 2001—a 12 percent increase over the previous year. This

timely guide has been a high priority for the I&E Committee
September 2002/Semiannual Report to Congress 59

OIG Highlights: Special Items of Note

because of its focus on so critical an area for IG review. Much

effort went into making this document a useful reference tool

for all PCIE members as well as others who oversee or manage

purchase card activities. Staff at the Department of Education

OIG took the lead in developing this project but the effort was

truly a collaborative one. The purchase card guide will help IGs

more effectively focus their efforts and serves as yet another

example of the commitment of the inspectors general to work

collectively to promote efficiency and effectiveness throughout

the federal government.

The guide is intended

to supplement existing

federal law, regulations,

and internal agency

guidelines and to be

used in conjunction

with other audit, inspection, or investigative

tools. But A Practical

Guide for Reviewing

Government Purchase

Card Programs also

provides commonsense

advice based on experience and includes

practical features to aid

in the review process

such as questionnaires

and templates. In addition, the guide contains a multiagency

resource list of OIG reviews, providing examples of how different agencies—including Agriculture, Commerce, Education,

Energy, GSA, Interior, State, Transportation, and VA OIGs and

GAO—conduct and present reviews of the purchase card program. It comes at a most opportune time as many IG offices

continue their important work in this critical area.

SPECIAL AWARDS

2002 PCIE AWARDS

FOR EXCELLENCE

Each year, PCIE surveys the work of the IG community and

honors particularly outstanding efforts that singularly or collectively advance the council’s mission. This year 27 members

of our staff and one entire office were honored. In every case,

their efforts enhance the entire OIG’s reputation for commitment to excellence and exemplify the professionalism and

rewards inherent in true teamwork. Recognition is accorded

as follows: 

Census 2000 Report, Improving Our Measure of America: What

Census 2000 Can Teach us in Planning for 2010: Chuck Tegeler,

Lisa Pearson, Heidi Alves, Jill Haflich, Patricia Derr, Karen

DePerini, and Rita Dettmar—for their landmark work in

providing timely and critical guidance for improving future

decennial operations. 

Emergency Preparedness and Physical Security Inspection:

Lisa Parker, Sharon Seymore, and former employees Erika

Lang, Tim Crowe, Nellie Wild, Peter Han, and Jon Shifrin—for

their comprehensive and timely review of emergency preparedness and physical security at 27 Commerce facilities, which

revealed a number of troubling weaknesses that needed to

be rectified.

False Claims: Allison Lerner, Greg Sebben, and Daniel

Buchtel—for their handling of an investigation into fraudulent

claims by the recipient of an Advanced Technology Program

award that resulted in a significant financial settlement in the

Department’s favor.

Grants and Cooperative Agreement Manual: Bill Bedwell,

Jerry McMahan, Thelma Amos, Kathleen McKevitt, and

Belinda Riley—for their role in developing the Grants and

Cooperative Agreement Manual, which has greatly enhanced

financial and operational soundness in the Department’s financial assistance programs. 

Interagency Teams

September 11 Response: Ken Clair, James Blake, Robert Brent,

and George Chiamulera, who, along with special agents from

other agency OIGs, voluntarily participated in recovery, investigative, and security operations related to the terrorist attacks in

New York and Washington.

PCIE Purchase Card Guide: Irene Lewkowicz, Belinda

Robinson, and the Office of Inspections and Program

Evaluations, along with members of the Department of Education

OIG—for development, design, and production of A Practical

Guide for Reviewing Purchase Card Programs. 

Special Recognition

George Grob, who recently concluded a 9-year tenure as chair of

the Inspections and Evaluation Roundtable, an adjunct to the I&E

Committee, received the Individual Achievement Award for his

outstanding leadership and the roundtable’s significant accomplishments under his watch. Mr. Grob was nominated for this

award by the I&E Committee, chaired by IG Frazier.
60

OIG Highlights: Special Items of Note

U.S. Department of Commerce/Office of Inspector General

PRESIDENTIAL MERITORIOUS

RANK AWARD 

Each year, the President recognizes a small group of career senior executives with the President’s Rank Award for exceptional

long-term accomplishments. Winners of this award are chosen

through a rigorous selection process—nominated by their agency

heads, evaluated by boards of private citizens, and approved by

the President. This year, Judith Gordon of this office was honored

with this prestigious award.

Judith Gordon, Assistant Inspector General for Systems

Evaluation, is responsible for planning, managing, and providing technical contributions to a work program that evaluates and

actively promotes improvements in the design, acquisition,

development, management, and security of the many complex

computer systems and related information technology investments throughout the Department. 

Ms. Gordon was instrumental in forging an important role for OIGs

in overseeing and evaluating information technology investments in

the federal government. Recognizing both the importance and

increasing complexity of information technology at the Department,

Ms. Gordon provided the concept and leadership for establishing

OIG’s Office of Systems Evaluation in 1994. The systems evaluation

capability she introduced to OIG and the Department was unique in

government and demonstrated that OIGs have and must play a critical role in ensuring maximum performance in the critical, costly, and

problem-prone area of information technology. The oversight program Ms. Gordon leads has also promoted improvements in the

development, acquisition, and management of information technology throughout Commerce, including for the 2000 Decennial

Census, USPTO, and National Weather Service. 

Ms. Gordon’s ability to define critical issues and develop practical, constructive solutions for resolving them has earned her

widespread admiration and respect throughout the Department

and the federal government. In addition to being a crucial source

of independent review and recommendations for improving systems acquisition, Ms. Gordon and her staff are also an extremely

valuable resource for advice and consultation on technical and

acquisition management issues. A recognized expert in the field

of federal information systems management, she is frequently

invited to represent OIG as a speaker at conferences and meetings. Articles about her work have appeared in the Federal

Times, Government Computer News, Federal Computer Week,

and other publications. 

COMMERCE’S SILVER

MEDAL AWARD

The Silver Medal is one of the highest honors bestowed by the

Secretary of Commerce, given to those select few employees

whose exemplary achievements have directly enhanced departmental operations. Allen Crawley and Kenneth Clair are OIG’s

two most recent recipients of this award. 

Allen Crawley, Deputy Assistant Inspector General for

Systems Evaluation, was recognized for the key role he played

in establishing OIG’s information security evaluation capability,

a highly effective method for assessing the security of the

Department’s critical information assets. With his guidance,

OIG’s systems evaluation staff successfully implemented a protocol that identifies and offers solutions for IT security issues,

greatly enhancing the Department’s efforts to protect its many

critical information assets. The program has had a positive

impact on every information security program and system

assessed. Mr. Crawley’s capability and professionalism are well

respected by his peers both in OIG and throughout

the government. 

Special Agent Kenneth Clair, selected on the basis of his work

ethic, attitude, and skills, served as a Federal Air Marshal with

the Federal Aviation Administration from October 2001 through

March 2002. Because of the terrorist incidents on September 11,

2001, the FAA augmented the Federal Air Marshal program with

law enforcement officers from other federal agencies until the

positions could be staffed with full-time employees. The FAA

Federal Air Marshal program is integral to assuring the safety of

the flying public by preventing and thwarting hijackings and terrorist attacks on U.S. civilian aircraft. 
September 2002/Semiannual Report to Congress 61

STATISTICAL OVERVIEW

AUDIT RESOLUTION AND

FOLLOW-UP

The Inspector General Act Amendments of 1988 require

us to present in this report those audits issued before the

beginning of the reporting period (April 1, 2002) for

which no management decision had been made by the end of the

period (September 30, 2002). One NOAA audit report remains

unresolved for this reporting period.

Department Administrative Order 213-5, Audit Resolution and

Follow-up, provides procedures for management to request a

modification to an approved audit action plan or for a financial

assistance recipient to appeal an audit resolution determination.

The following table summarizes modification and appeal activity during the reporting period.

Audit Resolution Follow-Up

Report Category Modifications Appeals

Actions pending 

(April 1, 2002) 0 6

Submissions 0 6

Decisions 0 4

Actions pending 

(September 30, 2002) 0 8

Audit and Inspection Statistical Highlights

for this Period

Questioned costs $11,885,325

Value of audit recommendations

that funds be put to better use $11,167,739

Value of audit recommendations

agreed to by management $9,198,142

Value of inspection recommendations

that funds be put to better use $0

INVESTIGATIVE OPERATIONS

AND STATISTICS

The Office of Investigations (OI) has authority to investigate

alleged or suspected fraud, waste, abuse, or mismanagement by

Department of Commerce employees, contractors, recipients of

financial assistance, and others involved in the Department’s programs and operations. These investigations typically result in

criminal and/or civil prosecution, as well as administrative sanctions for violation of Department regulations and employee

standards of conduct.

OI is composed of special agents and support staff strategically

located in Atlanta, Georgia; Denver, Colorado; Silver Spring,

Maryland; and Washington, D.C. OI special agents are deputized

as special deputy U.S. marshals pursuant to a memorandum of

understanding (MOU) with the Department of Justice and the

Federal Bureau of Investigation. This MOU provides all special

agents with full law enforcement authority while engaged in the

performance of their duties, including the authority to carry a

firearm, make arrests, and execute search warrants. 

During the past 6 months OI has conducted outreach within

Commerce that focused on informing and educating Department

personnel to recognize and report suspected fraudulent activity

related to their specific programs. OI is also beginning to proactively pursue issues that may be appropriate for investigation or

referral to a cognizant office or bureau. This approach is designed

to enhance our ability to prevent and detect fraud and will allow

us to identify potential vulnerabilities in Department programs

and operations. In addition, OI is continuing to partner with the

various operating units in both Commerce and OIG to ferret out

fraud and address systemic problems that impede the efficacy of

departmental programs.

TABLES AND STATISTICS
Investigative Statistical Highlights

for this Period

REPORTING REQUIREMENTS

Index

The Inspector General Act of 1978, as amended (1988), specifies

reporting requirements for semiannual reports. The requirements

are listed below and indexed to the applicable pages of this report.

Section Topic Page

4(a)(2) Review of Legislation and Regulations 62

5(a)(1) Significant Problems, Abuses, 

and Deficiencies 14-56

5(a)(2) Significant Recommendations 

for Corrective Action 14-56

5(a)(3) Prior Significant Recommendations 

Unimplemented 63

5(a)4 Matters Referred to Prosecutive 

Authorities 14-56

5(a)(5) and Information or

6(b)(2) Assistance Refused 63

5(a)(6) Listing of Audit Reports 64-69

5(a)(7) Summary of Significant Reports 14-56

5(a)(8) Audit Reports—Questioned Costs 64

5(a)(9) Audit Reports—Funds to Be

Put to Better Use 65

5(a)(10) Prior Audit Reports Unresolved 61

5(a)(11) Significant Revised Management 

Decisions 63

5(a)(12) Significant Management Decisions 

with which OIG Disagreed 63

OIG is also required by section 804(b) of the Federal Financial

Management Improvement Act of 1996 to report on instances and reasons when an agency has not met the dates of its remediation plan. We

discuss this matter in the March 2003 issue as part of our financial statements audit reporting.

4(a)(2): REVIEW OF LEGISLATION

AND REGULATIONS

This section requires the inspector general of each agency to

review existing and proposed legislation and regulations relating

to that agency’s programs and operations. Based on this review,

the inspector general is required to make recommendations in the

62

OIG Tables and Statistics

U.S. Department of Commerce/Office of Inspector General

Investigative Activities

Cases opened 63

Cases closed 45

Complaints received 130

Criminal Investigative Activities

Indictments/informations 3

Convictions 3

Sentencings 3

Jail 6 1/2 mos.

Probation/supervised release 132 mos.

Criminal judgments/restitutions/fines $42,687 

Criminal matters referred for prosecution 14

Criminal matters accepted for prosecution 11

Criminal matters declined 3

Civil Investigative Activities

Civil matters referred for prosecution 2

Civil matters accepted for prosecution 1

Civil matters declined for prosecution 1

Civil recoveries in dollars (minimum 

amount, to be paid over time) $700,000 

Administrative Investigative Activities

Matters referred for administrative action 20

Employee suspensions 1

Reprimands/counseling 1

Other personnel actions 1

Downgrades 1

Procurement remedies 1

General policy actions 4
September 2002/Semiannual Report to Congress 63

OIG Tables and Statistics

semiannual report concerning the impact of such legislation or

regulations on the economy and efficiency of the management of

programs and operations administered or financed by the agency

or on the prevention and detection of fraud and abuse in those

programs and operations. Comments concerning legislative and

regulatory initiatives affecting Commerce programs are discussed, as appropriate, in relevant sections of the report.

SECTION 5(a)(3): PRIOR

SIGNIFICANT

RECOMMENDATIONS

UNIMPLEMENTED

This section requires identification of each significant recommendation described in previous semiannual reports for which

corrective action has not been completed. Section 5(b) requires

that the Secretary transmit to Congress statistical tables showing

the number and value of audit reports for which no final action

has been taken, plus an explanation of the reasons why recommended action has not occurred, except when the management

decision was made within the preceding year.

To include a list of all significant unimplemented recommendations in this report would be duplicative, costly, unwieldy, and of

limited value to Congress. Any list would have meaning only if

explanations detailed whether adequate progress is being made to

implement each agreed-upon corrective action. As this semiannual report was being prepared, management was in the process

of updating the Department’s Audit Tracking System as of

September 30, 2002, based on annual status reports due from the

bureaus in mid-October. An accurate database was therefore not

available to OIG for reference here. However, additional information on the status of any audit recommendations can be

obtained through OIG’s Office of Audits.

SECTIONS 5(a)(5) AND 6(b)(2):

INFORMATION OR

ASSISTANCE REFUSED

These sections require a summary of each report to the Secretary

when access, information, or assistance has been unreasonably

refused or not provided. There were no such instances during this

semiannual period and no reports to the Secretary.

SECTION 5(a)(10): PRIOR AUDIT

REPORTS UNRESOLVED

This section requires a summary of each audit report issued

before the beginning of the reporting period for which no management decision has been made by the end of the reporting period (including the date and title of each such report), an

explanation of why a decision has not been made, and a statement

concerning the desired timetable for delivering a decision on

each such report. 

As of September 30, 2002, the following single audit summary

relating to a NOAA grant was unresolved for more than 6 months:

Questioned Costs for North Pacific

Marine Science Foundation (Washington)

Total $177,527

An OIG desk review of this NOAA single audit report (listed in

our March 2002 issue, page 111, ATL-09999-2-0430) questioned

a total of $177,527 in relation to undocumented in-kind contributions, unapproved indirect costs, costs claimed that were

excessive because an incorrect exchange rate was used for conversion, undocumented costs on federal reports, duplicate costs

claimed for federal reports, and unallowable travel. The report

also contained some nonfinancial findings. NOAA has not yet

submitted to OIG an audit resolution proposal for this report.

SECTION 5(a)(11): SIGNIFICANT

REVISED MANAGEMENT

DECISIONS

This section requires an explanation of the reasons for any significant revision to a management decision made during the

reporting period. Department Administrative Order 213-5, Audit

Resolution and Follow-up, provides procedures for revising a

management decision. For performance audits, OIG must be consulted and must approve in advance any modification to an audit

action plan. For financial assistance audits, OIG must concur

with any decision that would change the audit resolution proposal in response to an appeal by the recipient. The decisions issued

on the four appeals of audit-related debts were finalized with the

full participation and concurrence of OIG.

SECTION 5(a)(12): SIGNIFICANT

MANAGEMENT DECISIONS WITH

WHICH OIG DISAGREED

This section requires information concerning any significant

management decision with which the inspector general disagrees.

Department Administrative Order 213-5 provides procedures for

elevating unresolved audit recommendations to higher levels of

Department and OIG management, including their consideration

by an Audit Resolution Council. During this period no audit

issues were referred to the council.
64

OIG Tables and Statistics

U.S. Department of Commerce/Office of Inspector General

Report Category Number Questioned Unsupported

Costs Costs

A. Reports for which no management decision had been made 

by the beginning of the reporting period 28 $ 4,759,762 $ 799,192 

B. Reports issued during the reporting period 35 11,885,325 4,858,281 

Total reports (A+B) requiring a management decision during 

the reporting period1 63 16,645,087 5,657,473 

C. Reports for which a management decision was made during

the reporting period2 33 5,902,996 915,432 

i. Value of disallowed costs 3,269,494 293,653 

ii. Value of costs not disallowed 3,151,167 631,528 

D. Reports for which no management decision had been made 

by the end of the reporting period 30 $10,742,091 $4,742,041

Table 1. Audits with Questioned Costs

1 Eleven audit reports included in this table are also included among reports with recommendations that funds be put to better use (see table 2).

However, the dollar amounts do not overlap.

2 In Category C, lines i and ii do not always equal the total on line C because resolution may result in values greater than the original recommendations.

TABLES AND APPENDIXES

TABLES PAGE

1. Audits with questioned costs 64 

2. Audits with recommendations that funds

be put to better use 65

APPENDIXES

A. Report types this period 65

A-1. Performance audits 65

A-2. Financial-related audits 66

A-3. Inspections and Systems Evaluations 67

B. Processed reports 68

B-1. Processed financial-related audits 69

Definitions of Terms Used in the Tables

Questioned cost: a cost that is questioned by OIG because of (1)

an alleged violation of a provision of a law, regulation, contract,

grant, cooperative agreement, or other agreement or document

governing the expenditure of funds; (2) a finding that, at the time

of the audit, such cost is not supported by adequate documentation; or (3) a finding that an expenditure of funds for the intended

purpose is unnecessary or unreasonable.

Unsupported cost: a cost that, at the time of the audit, is not

supported by adequate documentation. Questioned costs include

unsupported costs.

Recommendation that funds be put to better use: a recommendation by OIG that funds could be used more efficiently if

Commerce management took action to implement and complete

the recommendation, including (1) reductions in outlays; (2)

deobligation of funds from programs or operations; (3) withdrawal of interest subsidy costs on loans or loan guarantees,

insurance, or bonds; (4) costs not incurred by implementing recommended improvements related to Commerce, a contractor, or

a grantee; (5) avoidance of unnecessary expenditures identified

in preaward reviews of contracts or grant agreements; or (6) any

other savings specifically identified.

Management decision: management’s evaluation of the findings

and recommendations included in the audit report and the issuance

of a final decision by management concerning its response.
September 2002/Semiannual Report to Congress 65

OIG Tables and Statistics

Report Category Number Value

A. Reports for which no management decision had been made by the 

beginning of the reporting period 6 $ 1,177,145

B. Reports issued during the reporting period 12 11,167,739

Total reports (A+B) requiring a management decision during 

the reporting period1 18 12,344,884

C. Reports for which a management decision was made during the 

reporting period2 10 2,440,055

i. Value of recommendations agreed to by management 5,928,648

ii. Value of recommendations not agreed to by management 180,196

D. Reports for which no management decision had been made by the 

end of the reporting period 10 $ 9,904,829

Table 2. Audits with Recommendations That Funds Be Put to Better Use

1

Eleven audit reports included in this table are also included in the reports with questioned cost (see table 1). However, the dollar amounts do not overlap. 2 In Category C, two reports had funds to be put to better use identified during the resolution process. Also, in Category C, lines i and ii do not always

equal the total on line C because resolution may result in values greater than the original recommendations.

Type Number Appendix

Performance audits 3 A-1

Financial-related audits 19 A-2

Inspections and Systems Evaluations 9 A-3

Total 31

Appendix A. Report Types this Period

Agency Date Issued Report Title Report Number Funds to Be Put 

to Better Use

NOAA 06/28/02 Program for Acquiring Fisheries Research 

Vessels Needs Stronger Management Controls STD-14428-2-0001 –

NOAA 09/30/02 Internal Controls for Travel Cards at OAR's 

Environmental Technology Laboratory Can 

Be Strengthened BTD-14908-2-0001 –

NOAA 09/30/02 Northwest Fisheries Science Center Needs 

Improved Research Management Processes to 

Better Implement Its Salmon Research Plan STD-14440-2-0001 –

Appendix A-1. Performance Audits
66 U.S. Department of Commerce/Office of Inspector General

OIG Tables and Statistics

Agency/Auditee Report Number Date Questioned Unsupported Funds to Be Put

Issued Costs Costs to Better Use 

EDA

Eastern Oklahoma 

Development District ATL-14301-2-0002 07/18/02 $300,000

Detroit Economic Growth 

Corporation, MI DEN-14963-2-0001 07/22/02 $749,430

City of East Cleveland, OH DEN-14962-2-0001 07/31/02 $513,480

Northwest Arkansas 

Economic Development 

District, Inc. DEN-15019-2-0001 08/28/02 $400,899

Philadelphia Authority for 

Industrial Development, PA ATL-15123-2-0001 08/30/02 $521,743

East Arkansas Planning and 

Development District DEN-14884-2-0001 08/30/02 $808,229

City of New York ATL-15125-2-0001 09/05/02 $57,977 $57,977 $3,457,049

City of Seattle, WA STL-14837-2-0001 09/05/02 $1,067,265

U.S. Virgin Islands ATL-15126-2-0001 09/23/02 $974,378

City of Milwaukee, WI DEN-14885-2-0001 09/30/02 $1,492,626

City of Los Angeles, CA—

Audit of Three EDA Grants 

for ACBOP STL-14900-2-0002 09/30/02 $97,897 $28,682

MBDA

City of Los Angeles, CA—

Audit of the MBDA Award 

for the LAMBOC STL-14900-2-0001 09/30/02 $499,746 $120,647

NIST

TriQuint Semiconductor

Texas, Inc., TX DEN-14517-2-0001 07/08/02

Minnesota Technology, 

Inc., MN DEN-14879-2-0001 07/22/02 $813,631 $813,631 $652,334

Facilichem, Inc., CA DEN-14886-2-0001 09/12/02 $483,065

H Power Corporation, NJ DEN-14978-2-0001 09/13/02 $181,819 $230,306

BioTrove, Inc., MA DEN-14989-2-0001 09/18/02

Allegheny-Singer Research 

Institute, PA ATL-13993-2-0001 09/26/02 $843,015 $435,988

NOAA

Pacific States Marine 

Fisheries Commission, OR STL-14956-2-0001 09/30/02 $428,695 $255,616

Appendix A-2. Financial-Related Audits
September 2002/Semiannual Report to Congress 67

OIG Tables and Statistics

Agency Date Issued Report Title Report Number Funds to Be Put

to Better Use

BIS 09/30/02 Annual Follow-Up Report on Previous Export 

Control Recommendations, as Mandated by the 

National Defense Authorization Act for Fiscal 

Year 2000, as Amended IPE-15290 –

NOAA 09/30/02 NWS Weather Forecast Offices Generally 

Perform Well, but Regional Oversight and 

Management at Some Offices Need to 

Be Improved IPE-14577 –

O/S 04/23/02 Stronger Management Controls Will Improve 

Planning and Control of CAMS OSE-14129 –

O/S 05/15/02 Information Security Requirements Need to Be 

Included in the Department's Information 

Technology Service Contracts OSE-14788 –

O/S 09/30/02 The Office of Administrative Services Needs 

Stronger Internal Controls and Management 

Oversight IPE-15131 –

O/S 09/30/02 Independent Evaluation of the Department's 

Information Security Program Under the 

Government Information Security Reform Act OSE-15260 –

TA/NIST 09/16/02 Additional Improvements Needed to Strengthen 

NIST's Information Security Program OSE-15078 –

USPTO 08/22/02 Stronger Management Controls Needed for 

Patent Application Capture and Review 

Automated Information System OSE-14926 –

USPTO 09/30/02 Independent Evaluation of USPTO's Information 

Security Program OSE-15250 –

Appendix A-3. Inspections and Systems Evaluations
68 U.S. Department of Commerce/Office of Inspector General

OIG Tables and Statistics

The Office of Inspector General reviewed and accepted 161 financial-related audit reports prepared by independent public accountants

and local, state, and other federal auditors. The reports processed with questioned costs, recommendations that funds be put to better

use, and/or nonfinancial recommendations are listed in Appendix B-1. 

Agency Audits

Economic Development Administration 44

National Institute of Standards and Technology 71*

National Oceanic and Atmospheric Administration 8

National Telecommunications and Information Administration 2

Multiagency 34

Agency not identified 2

Total 161

*Includes 59 ATP program-specific audits.

Appendix B. Processed Reports
September 2002/Semiannual Report to Congress 69

OIG Tables and Statistics

Agency/Auditee Report Number Date Questioned Unsupported

Issued Costs Costs

EDA

City of Columbia, SC ATL-09999-2-1123 09/26/02 $1,008,942

City of Watertown, NY ATL-09999-2-1149 09/30/02 $706,566

City of Rio Vista, CA ATL-09999-2-1194 09/30/02 $788,838 $788,838

Macon County, MO ATL-09999-2-1222 09/30/02 $466,800

NIST

Vitria Technology, Inc., CA ATL-09999-2-0989 04/09/02 $191,349

ETEC Systems Inc., CA ATL-09999-2-1066 04/09/02 $17,328

Caterpillar Inc., IL DEN-09999-2-0739 04/10/02 $207,782 $34,488

U.S. Steel, PA DEN-09999-2-0698 04/18/02

The Budd Company, MI DEN-09999-2-0704 04/18/02

E.I. DuPont de Nemours, DE DEN-09999-2-0741 04/18/02 $245,540 $70,673

Electro Scientific Industries, 

Inc., OR ATL-09999-2-1063 04/19/02 $13,405 $13,405

Ebert Composites 

Corporation, CA ATL-09999-2-1065 04/19/02 $15,944

DaimlerChrysler 

Corporation, MI DEN-09999-2-0696 05/03/02

Eastman Chemical 

Company, TN DEN-09999-2-0828 05/23/02 $4,062

Walter Juda Associates, 

Inc., MA DEN-09999-2-0949 05/23/02 $10,041

Chevron Research and 

Technology Center, CA DEN-09999-2-0816 06/19/02 $111,975

CoorsTek, Inc., CO DEN-09999-2-0871 06/19/02 $131,621 $131,621

Sun Microsystems, Inc., CA ATL-09999-2-0859 06/24/02 $17,437

Synquiry Technologies, 

Ltd., MA ATL-09999-2-1198 07/28/02 $28,782

Saginaw Machine Systems, 

Inc., MI DEN-09999-2-0784 07/30/02 $21,300

Imaging Therapeutics, Inc., 

CA (formerly OsteoNet.

Com, Inc.) DEN-09999-2-1081 08/14/02 $39,972

VitalWorks, Inc., CT ATL-09999-2-0982 08/26/02 1,404,505 $1,404,505

KLA-Tencor Corporation, CA DEN-09999-2-1238 08/28/02 $1,632,747

State of Nebraska ATL-09999-2-1114 09/12/02 $616,611 $616,611

Florida Manufacturing 

Technology Center ATL-09999-2-1154 09/12/02 $167,928 $20,192

Chicago Manufacturing 

Center, IL ATL-09999-2-0630 09/25/02 $14,689

Chicago Manufacturing 

Center, IL ATL-09999-2-0818 09/25/02 $1,928

Chicago Manufacturing 

Center, IL ATL-09999-2-1074 09/25/02 $480,756 $19,611

3M Company, MN ATL-09999-2-1192 09/25/02 $101,382 $45,796

NOAA

State of Connecticut ATL-09999-2-1099 09/20/02 $31,250

Appendix B-1. Processed Financial-Related Audits
70 U.S. Department of Commerce/Office of Inspector General

ACRONYMS

ACBOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Alameda Corridor Business Outreach Program

ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Advanced Technology Program

BEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bureau of Economic Analysis

BIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bureau of Industry and Security (formerly Bureau of Export Administration)

CAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Commerce Administrative Management System

CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Committee on Foreign Investment in the United States

CFO/ASA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Financial Officer and Assistant Secretary for Administration

CIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .chief information officer

CIRT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .computer incident response team

CIYA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cash-in-Your-Account

CCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Commerce Control List

COOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .continuity of operations plans

COTR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .contracting officers’ technical representative

CSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CAMS Support Center

DOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Department of Transportation

ECASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Export Control Automated Support System

EDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Economic Development Administration

EEZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . exclusive economic zone

ESA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Economics and Statistics Administration

ETL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Environmental Technology Laboratory

FAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Acquisition Regulation

FRV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .fisheries research vessel

GAO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .General Accounting Office

GISRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Government Information Security Reform Act

GPRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Government Performance and Results Act

GSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .General Services Administration

GWAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .government-wide agency contract

IA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Import Administration

IG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .inspector general
September 2002/Semiannual Report to Congress 71

Acronyms

IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .information technology

ITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .International Trade Administration

ITL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Information Technology Laboratory

LAMBOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Los Angeles Minority Business Opportunity Committee

LTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Long-Term Economic Deterioration

MASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mountain Administrative Support Center

MBOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority Business Opportunity Committee

MEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Manufacturing Extension Partnership

MOU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .memorandum of understanding

NDAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Defense Authorization Act

NIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Institute of Standards and Technology

NMFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Marine Fisheries Service

NOAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Oceanic and Atmospheric Administration

NRFU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .nonresponse follow-up

NTIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Telecommunications and Information Administration

NTIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Technical Information Service

NWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Weather Service

OAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Acquisition Management

OAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of the Secretary

OEAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Executive Assistance Management

OEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Occupant Emergency Plans

OFPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Federal Procurement Policy

OHRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Human Resources Management

OI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Investigations

OIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Inspector General

OMB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Management and Budget

PACR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Patent Application Capture and Review System

PWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Public Works Program

RLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .revolving loan fund

SSED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sudden and Severe Economic Dislocation

US&FCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. and Foreign Commercial Service

USPTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Patent and Trademark Office

WFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .weather forecast office
September 2002/Semiannual Report to Congress 73

For the federal government, OIGs must ascertain program viability from a variety of perspectives. The various kinds of audits,

evaluations, inspections, and investigations at our disposal afford

the IG's office a comprehensive view of Commerce programs

and operations. Thus we are able to provide program managers

with reviews and recommendations that are both objective and

inclusive and can be used to aid them in ensuring the most efficient and effective use of taxpayer dollars. 

AUDITS

Performance Audits address the efficiency, effectiveness, and

economy of the Department's programs, activities, and information technology systems. They may check a unit's compliance

with laws and regulations, and evaluate its success in achieving

program objectives.

Financial-Related Audits review the Department's contracts,

grants, cooperative agreements, loans, and loan guarantees.

They assess compliance with laws, regulations, and award

terms; adequacy of accounting systems and internal controls;

allowance of costs; and the degree to which projects achieved

the intended results. 

Financial Statements Audits determine whether (1) a reporting

entity's financial statements are presented fairly and in accordance with generally accepted accounting principles; (2)the entity has an internal control structure that provides reasonable

assurance of achieving the control objectives set forth by OMB;

and (3) the entity complied with laws and regulations that could

have a direct and material effect on the financial statements, the

Federal Financial Management Improvement Act, and other laws

and regulations.

TYPES OF OIG REVIEWS

INSPECTIONS

Inspections are reviews of an activity, unit, or office, or a contractor or other nonfederal entity that receives funds from the

Department. They focus on an organization, not a whole program, and are often designed to give agency managers timely and

useful information about operations, including current and foreseeable problems.

EVALUATIONS

Program Evaluations are in-depth reviews of specific management issues, policies, or programs.

Systems Evaluations review system development, acquisitions,

operations, and policy, focusing on computer systems and other

technologies.

INVESTIGATIONS

Criminal/Civil/Administrative Investigations are conducted

based on alleged or suspected wrongdoing by Department

employees, contractors, recipients of financial assistance, and

others responsible for handling federal resources. Investigations

that expose violation of Department rules and regulations or acts

of fraud committed against the U.S. government can result in

administrative sanctions and/or criminal or civil prosecution.